Decentralization and state reform are generally seen, at least by proponents, as catalysts for rectifying perceived shortcomings in the economic and political systems to which such reforms are applied. On the economic side, decentralization tends to be incorporated into a broader framework of state reform that is informed by the market-oriented critique of traditional statist development models. Fiscal decentralization, wherein the central government transfers both substantial spending and taxing authority to subnational entities, is designed to achieve the archetypal market goals of efficiency, rationalization and discipline. In the political realm, decentralization is seen in the larger context of democratization where it is seen as playing a key role in enhancing participation, responsiveness and accountability.It is precisely because decentralization was associated with such 'virtuous' effects that it came to be seen in Latin America as the best, if not the only, solution to systemic economic and political crises of the 1980s and 1990s. The catastrophic economic declines of 'la década perdida' and the hemispheric transitions away from authoritarian rule combined to create a widespread decentralizing impulse throughout region. The speed and scope of the reforms ultimately undertaken, of course, varied widely across countries. To a certain extent, this variation was linked to the depth and nature of the specific crisis each nation was experiencing. Countries which did not experience profound crises tended to be much slower and more limited in approaching reform. Costa Rica is one such country. While the nation's economy suffered sustained and serious declines throughout the 1980s and 1990s, it did not experience the disastrous freefall that befell some of its Latin American neighbors. And though the political system was battered to a certain extent, particularly in relation to the military conflicts that engulfed Central America in the 1980s, its long-standing democracy was never in danger. Because of this, and because Costa Rica has historically been one of the most highly centralized countries in the hemisphere, it is not surprising that decentralization has only relatively recently, and somewhat reluctantly, been taken up seriously by political leaders. As elsewhere, many of the arguments in favor of reform concentrate primarily on the aforementioned economic benefits that are predicted to accrue from decentralization.This paper, however, will concentrate primarily on the political aspects of decentralization, focusing attention on potential consequences of the process which could act to undermine, rather than bolster, Costa Rican democracy. Specifically, I will examine the prospects for four possible negative side effects of the ongoing decentralization process: party system fragmentation; reinforced or mutated clientelism; inter-municipal conflict and polarization; and local government instability.

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