Fiscal decentralization can be looked at in terms of four basic building blocks or “pillars” (UNDP
2005). First is the assignment of expenditure responsibilities to different government levels. Second is the assignment of tax and revenue sources to different government levels. Third is intergovernmental transfers—central governments may provide regional and local governments with additional resources through a system of intergovernmental fiscal transfers or grants. Fourth is the issue of subnational borrowing and whether local governments are permitted to borrow to finance revenue shortfalls.