8 - Financing Local Democracy

Summary

Chapter 8 examines the economic and fiscal dimensions of decentralization in the Islamic Republic of Iran. It presents a comprehensive empirical picture of fiscal decentralization and municipal finances under the IRI, which up till now has been a black box to Iran scholars. This chapter provides a look inside by describing the structure of subnational finance in Iran by analyzing a unique dataset I assembled covering the first phase of decentralization (1998–2006) covering almost 90 cities over an eight-year period – the result of the only comprehensive empirical study of municipal finances in Iran to date. This dataset provides a picture of the revenue and expenditure responsibilities of municipalities. The chapter explores the incentive structure of local government actors and the extent to which the political economy of fiscal decentralization in Iran supports or hinders the three projects for local government laid out throughout the book so far. It shows that local government’s lack of financial autonomy – explicitly constrained by tax, administrative, and local government laws – both distorts broad democratic participation and weakens the capacity of local governments to stimulate local economic development. The chapter highlights that the failure of the original decentralization reforms to put local economic development as a core priority has led to a failure in this regard, a major shortcoming of decentralization Iran to date.