What are the components for measuring good governance index?

Debates on the appropriate role of the state and appropriate policies and institutions to

further this role are typically carried out by relying upon anecdotal evidence in the absence

of a quantifiable definition of "good government." This paper attempts to fill this void by

developing a gauge of the quality of government through the construction of an index of

governance quality for a sample of eighty countries. This index is offered as a starting

point for an objective assessment of various economic policies to further the quality of

governance rather than as a precise and definitive indicator of governance quality. After

describing the construction of the index and the results, we provide an application to the

debate on the appropriate level of decentralization of fiscal powers.

This application provides empirical support for the theoretical underpinnings of the fiscal

federalism literature. Governance quality is enhanced, according to this theory, by more

closely matching services with citizen preferences, and by moving governments closer to

the people they are intended to serve, which ensures greater accountability of the public

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