Equity implications of central government recurrent grants to district councils: the case of health and education

The purpose of this study is to reveal the inequality inherent in the government criterion of allocating grants to local governments. The study starts by showing that the government must concern itself with social service provision because of the consequent inequality that would result under a pure market system. The government provides grants for social service provision to district councils, using the requirement creterion. This study then concentrates on health and education; sectors which absorb most of the grants. Based on the premise that allocation of grants based on facilities will cause inequality, since the distribution of facilities does not follow the distribution of beneficiaries, a model is established with the variables considered to determine grants allocation in Tanzania. Through econometric analyses of the 1991/92 approved health and education grants to district councils, the study has revealed that in the allocation of health grants population/beneficiaries is/are least considered. The population variable in the model is insignificant, while all the variables for facilities are significant. This supports the argument of the study. The results have also shown that education grants are more related to the distribution of beneficiaries than health grants. Minor tests have shown that distribution of facilities is not according to the distribution of beneficiaries in the health sector compared with the education sector. The main conclusion is that allocation of grants on the basis of requirement criterion will lead to uneven development of district councils. Thus, if the government wants to retain the requirement criterion in allocating grants, it should increase the investment component of grants in areas with few social service facilities or use mobile facilties in the short run, if the objective of greater equity is to be achieved.