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THE EFFECTIVENESS OF FISCAL DECENTRALIZATION AS INSTRUMENT OF POVERTY ALLEVIATION IN UGANDA

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THE EFFECTIVENESS OF FISCAL DECENTRALIZATION AS INSTRUMENT OF POVERTY ALLEVIATION IN UGANDA

ABSTRACT

The study sought to establish the effectiveness of fiscal decentralization as an instrument of poverty alleviation in Uganda: a case study of Kampala Capital City Authority. The study objectives were; to find out the extent to which fiscal decentralization has contributed to poverty reduction, to find out the challenges faced by fiscal decentralization in Kampala district, to establish ways in which fiscal decentralization can be enhanced to alleviate poverty in Kampala district. A cross sectional survey was used in the course of the study. Both qualitative and quantitative data was gathered in order to establish the effectiveness of fiscal decentralization as an instrument of poverty alleviation in Uganda: a case study of Kampala Capital City Authority and therefore account for the performance levels. The study comprised of 60 respondents in Kampala Capital City Authority. Simple random approach was used during the study. Purposive sampling was also used to select only respondents for the researcher to attain the purpose of the study. Data was collected using both primary and secondary sources. After collecting data, the researcher organized well-answered questionnaire, data was edited and sorted for the next stage. The data was presented in tabular form, pie charts and bar graphs with frequencies and percentages. The researcher used Statistical Package for Social Sciences (SPSS) to analyze the relationship between the variables under study. The study findings indicated that the majority of respondents with 42% strongly agree that fiscal decentralization has ably changed the tax mix and the composition of public expenditures, 17% agree, 8% were not sure while 17% strongly disagree and the remaining 17% disagreed. More to that majority of the respondents with 33% strongly agree that there is insufficient capacity at local levels to plan and deliver services using locally generated revenues and transfers from the central government, 25% agree, 8% were not sure and 17% strongly disagree and also 17% disagree. The study recommends that poverty alleviation is not merely a redistributive function. It involves both capacity improving and safety net policies. While policies aimed at accelerating growth and directing the benefits of growth will help to reduce poverty in the long term, direct redistribution such as providing basic education, healthcare and employment policies provide safety nets to the poor in the short term.

CHAPTER ONE

1.0 Introduction

This chapter presents the background, statement of the problem, objectives of the study, research questions, significance of the study, scope of the study and the theoretical framework.

1.1 Background of the Problem

Over the years considerable progress has been made in designing and implementing policies and in building appropriate structures of incentives and institutions to combat poverty. Yet, almost a billion people in the world continue to be in abject poverty. They cannot afford minimum requirements of food, clothing, shelter, and education and health facilities. Majority of the poor in live in less developed countries of South Asia, sub-Saharan Africa and Latin America. Therefore, nature and causes of poverty and interventions to improve the living conditions of poor continue to be a matter of concern and a priority area of research. While our understanding of this problem today is significantly better than what it was thirty years ago, there is no doubt that much more remains to be done to evolve effective policies and institutions and find more effective ways of implementing to combat this multifaceted problem (Ahmad et al. 2006).

Fiscal decentralization enters into poverty alleviation strategy in a number of ways. The proximity of policy makers to the target groups reduces information and transaction costs of identifying the poor and helps in designing potentially successful ‘capacity improving’ and ‘safety net’ policies. In an economy with significant intercommunity (regional/local) variations in preferences, and when there are no significant economies of scale and scope, decentralized provision of public services can enhance efficiency in the provision of these services and result in welfare gains (Oates, 1999).

The past two decades have seen far-reaching decentralization of state functions in many if not most countries of the world. Where has this drive for decentralization come from? It is widely acknowledged that, in central and Eastern Europe in the early 1990s, there was a real demand from the local level for local democratic control and autonomy, as a reaction against the failures of the centralized state over the previous four decades (Coulson, 1995). To some extent, the same can be said of several countries in Latin America (Menocal, 2004), and even some countries of Western Europe (France, Belgium, Spain, Italy, for example). But whether these trends truly reflected a groundswell of public opinion at the local level, rather than the interests of certain local elites who perceived political opportunities for themselves, is open to question. Within Europe, the process of decentralization has also been encouraged by the European Union, which, in addition to its treaty principle of subsidiarity, has actively promoted a “Europe of regions” as a counterweight to the nation states.

In some other parts of the world, decentralization of the state has been a response to actual or potential regional conflicts. Indonesia, which was until the end of the 1990s a highly centralized state, has undertaken a far-reaching decentralization of powers and resources (Aspinall et al., 2003). Yet this has not been driven so much by democratic demands from the local level as by local elite interests and by the fear at the centre of secession by the resource rich regions. Similar pressures, reinforced by ethnic divisions, are evident in Russia, Nigeria, Ethiopia, Sudan, Sri Lanka and Philippines, among others.

In Uganda especially Kampala Capital City Authority (KCCA) and the districts are the highest tier of government. Urban areas are composed of municipalities and towns; both Kampala district and the municipalities are split into divisions, and subsequently, wards and zones. The rural districts are split into sub counties and subsequently into parishes and villages. Most of the executive decisions are taken at the district and municipality level. The lower-level authorities are considered to be the sub-counties, towns and divisions, while parishes and wards are regarded as administrative units supporting their upper structures (Ahmad et al. 2006).

Despite the obvious importance of understanding the exact impact (and interaction) of fiscal decentralization on poverty alleviation, relatively little is known about the intersection of these two topics. In the traditional public finance literature to date there have been only a few serious attempts to systematically consider the impact of the different dimensions of fiscal decentralization on poverty alleviation. In turn, the traditional literature on poverty has largely ignored the role that local governments and decentralization play in poverty alleviation strategies. In fact, poverty reduction and economic development in developing and transition countries have traditionally been approached exclusively as a central government challenge (Ahmad et al. 2006).

1.2 Statement of the Problem

Decentralization and poverty reduction may be correlated, but theoretically, there is no clear cut functional relationship between the two. Until recently development policy debates on decentralization largely focused on governance and efficiency, and hardly on poverty effects. With the aim of supposedly more effective poverty reduction agendas in mind, local and international organizations are increasingly calling for decentralization. Decentralization may affect poverty directly and indirectly: Direct effects of decentralization for poverty reduction relate, for instance, to regional targeting of transfers. Indirectly, e.g. in-efficiency in local public services and related hampered economic growth effects of sub-optimal decentralization adversely impinge on poverty reduction

In Uganda especially Kampala Capital City Authority (KCCA) and the districts are the highest tier of government. Urban areas are composed of municipalities and towns; both Kampala district and the municipalities are split into divisions, and subsequently, wards and zones. The rural districts are split into sub counties and subsequently into parishes and villages. Most of the executive decisions are taken at the district and municipality level. The lower-level authorities are considered to be the sub-counties, towns and divisions, while parishes and wards are regarded as administrative units supporting their upper structures (Ahmad et al. 2006).

Over the years considerable progress has been made in designing and implementing policies for example fiscal decentralization and in building appropriate structures of incentives and institutions to combat poverty. Yet, a big number of people within Kampala district continue to be in poverty. They cannot afford minimum requirements of food, clothing, shelter, and education and health facilities. Majority of the poor in live in subs of Kampala district. It is against this background that the researcher investigated the effectiveness of fiscal decentralization as an instrument of poverty alleviation in Uganda, a case study of Kampala Capital City Authority.

1.3 Purpose of the study

The purpose of the study was to generate new knowledge on the effectiveness of fiscal decentralization as an instrument of poverty alleviation in Uganda focusing on Kampala Capital City Authority.

1.4 Objectives of the study

1.4.1 General Objective

To find out the effectiveness of fiscal decentralization as an instrument of poverty alleviation in Kampala Capital City Authority  

1.4.2 Specific objectives

  1. To find out the contributions of fiscal decentralization to poverty alleviation in Kampala district.
  2. To find out the challenges faced by fiscal decentralization in Kampala district.
  3. To establish ways in which fiscal decentralization can be enhanced to alleviate poverty in Kampala district.

1.5 RESEARCH QUESTIONS

  1. What is the contribution of fiscal decentralization to poverty alleviation in Kampala district?
  2. What are the challenges faced by fiscal decentralization in Kampala district?
  3. What ways in which fiscal decentralization can be enhanced to alleviate poverty in Kampala district?

1.6 scope of the study

1.6.1 Geographical scope

The study was conducted in Kampala district using Kampala Capital City Authority (KCCA) as a case study. Kampala Capital City Authority (KCCA) is the legal entity, established by the Ugandan Parliament, that is responsible for the operations of the capital city of Kampala in Uganda. It replaced the former Kampala City Council (KCC).

1.6.2 Content Scope

The study focused on fiscal decentralization as an independent variable and Poverty alleviation as the dependant variable. The sample size selected for the study also included 5 Accountants, 5 auditors, 4 procurement officers, 1 finance manager, 25 women and 20 men. The total sample size was 60 respondents.

1.6.3 Time scope

The study focused on the time period 2012-2014. This period was long enough to easily measure the impact of fiscal decentralization on poverty alleviation in Kampala district.

1.7 Significance of the Study

District administration

The research finding will be useful to the district administration especially those in the CAO and the Chief Finance officers office to ascertain the impact fiscal decentralization on poverty levels alleviation in the district and improve on their performance.

The research findings may go a long way to enhance the management oversight role of supervision and providing a check list to compare the performance of the fiscal decentralization towards poverty alleviation in the district.

Donor community

The research findings may be of importance to the donor community, who provide funds for some of the Local government programs and projects.

Academicians

The research findings will also benefit the academicians by acting as a source of literature review for further research.

Government

Government as policy maker, this research study will help it to formulate effective fiscal decentralization after realizing the weaknesses within the institution of Kampala Capital City Authority.

1.8 Definition of key terms

Decentralization (or decentralization) is the process of redistributing or dispersing functions, powers, people or things away from a central location or authority.

Poverty is general scarcity, or the state of one who lacks a certain amount of material possessions or money.

 

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