The only two certainties in life are death and taxes. So goes the quote attributed to American politician Benjamin Franklin (or Christopher Bullock or Edward Ward, depending on which source you trust most).

But whoever said it – it is still true. Taxes are a certainty. But how they are collected and spent is not. This is what this piece is about. I shall focus on the institutional aspect of this topic: What system ensures governments are spending on what voters wish them to do?         

Localism is a possibility. And there are pros and cons.

On the one hand there are those, whom I’d call the “centralists”. Mike Hosking praise for the central government to overrule councils’ decisions on housing in Auckland is an example for that. Of course the housing market is not working, but that is because of a lack of incentives for local authorities and for no other reason. Hosking however went on to hint that it’s better to get rid of local authorities altogether.

Others have more faith in local power. Let’s call them “localists”. Their argument is that local power might make it easier for the people in charge to find out what their voters want. All in all, preferences of the voters and taxpayers could be represented better and, local decision making should increase public interest in politics and therefore lead to cost-conscious behaviour.

So, who is right?   

Economic research done by a group of researchers in Switzerland have gathered empirical evidence on that question. Their conclusion from the various research papers they summarized is interesting: Decentralisation provokes a change in the structure of public revenue and spending. For example, decentralisation would increase the share of expenditure that goes to education and health. And they also found evidence decentralisation has a positive impact on education quality.

The idea that local governments are unable to do good is therefore wrong. Localists have a point. But, in order to make localism work, the incentives have to be right, and local authorities have to be treated as a relevant part of the state. In a setting like this, local authorities have been proven to be able to deliver what they should – good quality services at a competitive cost.  

Though we cannot avoid death, we can at least ensure our taxes are spent wisely. Devolving decision-making powers may just be the way to achieve that.