This thesis studies the relationship between decentralization and economic development. The work starts with the analysis of theories about means and ends of development until reaching the new institutional theory, which emphasizes the role of institutions for the development process. Subsequently, since decentralization has been widely advocated as a positive institutional reform for economic development, it analyzes the theoretical arguments in favor of decentralization. They are classified according to its economic aim, which assumes that the benefits of local government would be designed more efficiently, and its political aim, notably, the strengthening of local democracy. Both aims are linked to the hypothesis that decentralization contributes to the increase of popular participation and, consequently, allows strengthening of feedback and accountability mechanisms. The relationship between participation and development is, therefore, examined. After presenting the theoretical foundations, it analyzes the obstacles and benefits of the decentralization reform observed in the Brazilian context. While addressing the evaluation of decentralization particularly after the 1988 Federal Constitution, this thesis considers the influence of the trend toward re-centralization and the problem of capture by local elites in the results of decentralization in Brazil.