In a sizable number of developing countries, the public sector fails to
provide many, if not most, critical public goods necessary for economic
development. The presence of a well-functioning state is key to
encouraging economic growth. Part of this concerns having a public
sector that has the capacity to raise revenues and spend them
effectively; and that policymakers are incentivized to act in favour of
their citizen. This paper discusses recent developments in the
literature on state effectiveness. Each section covers the relevant
theory with a special focus on the current knowledge about the
mechanisms highlighted, potential policy measures, gaps in current
research and potential ways to fill these gaps.
The first main part of the paper addresses how to build state
capabilities. This requires improving tax compliance and long-run fiscal
capacity, thinking carefully not only about how taxpayers are monitored
and incentivised to pay taxes. It also requires us to think about the
optimal design and management of public sector organisations, including
recruitment strategies and the targeting of particular traits. This
involves having an effective bureaucratic apparatus that implements
policies in an effective manner and without delays, taking decisions at
the right level of centralisation and delegating decision-making
processes to the right agents.
The second main theme is about politics and policy choice. To implement
growth enhancing policies it is necessary to understand how different
political institutions translate conflicting societal demands into a
single implemented public policy. This requires knowing which policies
expand state capabilities, and how to create the political willingness
to implement growth-friendly policies, thinking about political
accountability and how the conflict of interest between citizens and
politicians and bureaucrats is resolved. Moreover, designing and
implementing mechanisms for aggregating preferences of different groups
in the formulation of policy is also critical, as well as understanding
how to prevent conflict and how to rebuild after.
Azulai, M.; Bandiera, O.; Blum, F.; Kleven, H.; La Ferrara, E.; Padró, G.; Tejada, C.M. Evidence paper: State effectiveness, growth and development. International Growth Centre, UK (2014) 106 pp.