A major economic problem, in many countries all over the world, is how to allocate scarce government resources in such a way as to provide public services in the most efficient manner. In a large political federation such as Brazil, the choice of
the degree of decentralization in the provision of those services represents a critical issue. Currently, there seems to be a broad consensus that such decentralization is advantageous for the implementation and distribution of public services. Various reasons are given for why local governments should have an advantage in providing such decentralized services. First, the proximity of users may help to identify the priorities of the community. Second, the decentralization of resources, by simplifying the bureaucratic channels before the funds reach their destination, reduces the opportunities for corruption and inefficiencies. Finally, requirements of managerial capacity are lower, which is essential for the good performance of projects in small and medium sized municipalities. However, the mere decentralization of public spending does not guarantee, per se, a satisfactory provision of the corresponding services. It is also necessary to ensure that public funds are used in the best possible way by the municipalities. Therefore, it is imperative to establish efficiency criteria that could be used to evaluate how public resources are being spent by local governments