The Political Economy of Fiscal Decentralization under the Islamic Republic of Iran

Abstract

AbstractA key challenge for democratizing local government is the extent to which local policy is responsive and accountable to local voters’ preferences. The goal of this paper is to assess the potential relevance of this thesis in the case of the Islamic Republic of Iran (IRI) by focusing on the fiscal dimensions of elected local government first established in 1999. In this paper, I present descriptive data and empirical analysis to provide a comprehensive picture of fiscal decentralization and municipal finances under the IRI, which up till now has been a “black box.” To peer inside, I present the results of a unique dataset on almost ninety cities gathered over an eight‐year period covering the first phase of decentralization (1998–2006). I find that elected municipalities in Iran possess limited fiscal and legal autonomy on both the revenue and expenditure sides. The findings provide support for the broader thesis that the structure of local government finance has acted to thwart the Islamic reformists’ project of local democratization and strengthening local government accountability.