Rationale And Need For Sub-Central Authorities:

In a federal context, a decentralized government is one wherein a number of small autonomous unit governments join together to form a federation of States. The federal government does coordinate the activities and programmes  of the smaller decentralized governments. On the other hand local governments have the autonomy with regard to determining  the levels of public outputs and fiscal decisions. It is necessary to note that the degree of centralization varies with the amount of autonomy these unit governments enjoy over expenditure-public goods output and tax decisions. For example in the USA the state governments as well as the local governments enjoy greater freedom with regard to allocation of resources and levying of taxes and non-tax charges and other related policies. Here the federal government plays a coordinating role and provides public services of only of national interest. But in the UK a larger proportion of local government expenditure is financed by the central government in the form of grants-in-aid. The powers and functions of the local governments are delegated by the Central Government. For instance, the local governments need  approval from the Centre to take upon capital expenditure programmes and also borrowing of funds. So the degree of decentralization differs from country to country as it is in the case of the USA and the UK.

The most important advantage of decentralized governance is that it provides scope for greater choice between different amounts of public goods and services. As decentralization facilitates production of different levels of public goods in accordance with the individuals' local preferences, resource allocation will be efficient. In this context a brief explanation of the Tiebout Model is pertinent to have an elaborate understanding of the issue.