Can Fiscal Recentralization Strengthen Local Government? The Case of Thailand

Abstract

Thailand in 2018 became the latest developing country to impose mandatory rules on its fiscal policy that included a national limit on the accumulation of public debt and direct control of local government budgets. Such fiscal recentralization is generally assumed in the literature on multi-level finance to weaken local economic, fiscal, and policy conditions. Yet a newer emphasis in this literature asserts the potential value of central governments in steering and constraining local governments through public finance. Such central steering may strengthen rather than weaken local governments via fiscal, economic, and policy conditions. In this paper, we use the emergent theory of pro-local fiscal recentralization to examine the initial evidence, as well as the emergent opportunities, for local governments in Thailand. We find grounds for optimism that fiscal recentralization will have positive effects, and identify strategies for local governments to optimize those effects. We conclude with recommendations for research and practice on fiscal recentralization in other developing country contexts.