01-58 UCLG (English)
15/11/07
09:55
Página 23
23
2. FUNDING OPTIONS AND GAPS: IDENTIFYING THE MISSING LINKS
1) Why should local governments finance local public infrastructure? Considering the benefit area of several government goods and services, local governments are best positioned to carry out local infrastructure investments. For many government services such as street lighting, water provision, sewage collection and treatment, that affect local residents, local governments have a better knowledge than the central governments of the local situation and their citizens’ priorities. Decentralization enables more variety, experimentation and innovation in service provision. In contrast, central provision is likely to lead to uniformity. These arguments plead for a substantial degree of local governments’ autonomy in
infrastructure and service provision. They are based on the principle of local governments’ accountability and responsibility to their electorate, for both the expenditure they incur and the revenue they raise to finance it. Local governments have constant pressure to provide or facilitate the delivery of essential infrastructure services, yet they have often modest and sometimes no means to fund it, especially in developing countries. According to data collected in Local Governments in the World, Basic Facts on 80 Selected Countries, a joint UCLG-DEXIA study, local governments total expenditures and local government capital expenditures amount respectively to 1.9 % and 0.4% the GDP on average in the low income countries studied (against 10.9% and 1.5% of the GDP in the high income countries studied).
1. Provision of pure public goods. Such goods may be defined by two characteristics: – their consumption is non-rival–i.e., consumption by an individual is not in competition with consumption by someone else; – their consumption is non-excludable–i.e., it is not possible to exclude someone from their consumption because, for example, he or she did not pay for the service. Among typical local services, the best example of a public good is perhaps street lighting. «Using» light produced by a streetlight does not place a person in competition with someone else who may benefit from the same light. It is also hard to imagine that the lamp would be switched on only for those who paid a fee for street-lighting while others were excluded from consumption of the service. Such an example serves to demonstrate how the market is not capable of regulating the provision of public goods. 2. Several typical local services such as water provision, sewage collection and treatment, central heating and gas supply are natural monopolies. Natural monopolies can be defined as sectors in which a single provider can produce a lower unit cost (for technical reasons) than two or more providers could. Here too, market regulation is not efficient and public intervention is required.
The Context: an Urgent and Common Issue: the Ongoing Urban Explosion is not yet Met by Appropriate Investments in Local Public Infrastructure
Box 1 Justification for Local Public Spending – the Provision of Local Public Goods.