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Spending Growth With Vertical Fiscal Imbalance: Decentralized Government Spending In Norway, 1880–1990

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  • Lars–Erik Borge
  • Jørn Rattsø

Abstract

Vertical fiscal imbalance, decentralized responsibility of spending with centralized financing, creates a common pool problem with spending pressure towards central funds. A model of decentralized government spending under vertical fiscal imbalance is developed, and the importance of national political characteristics for internalization of costs and spending level is investigated in an econometric analysis of Norway during 1880–1990. We argue that in a parliamentary democracy, the internalization of costs is influenced by the party fragmentation of parliament. This is confirmed by the econometric analysis using a Herfindahl index as a measure of fragmentation and political strength.

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  • Lars–Erik Borge & Jørn Rattsø, 2002. "Spending Growth With Vertical Fiscal Imbalance: Decentralized Government Spending In Norway, 1880–1990," Economics and Politics, Wiley Blackwell, vol. 14(3), pages 351-373, November.
    • Handle: RePEc:bla:ecopol:v:14:y:2002:i:3:p:351-373
    DOI: 10.1111/1468-0343.00111
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    Cited by:

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    2. Rodden, Jonathan, 2003. "Reviving Leviathan: Fiscal Federalism and the Growth of Government," International Organization, Cambridge University Press, vol. 57(4), pages 695-729, October.
    3. Agnieszka Kopańska, 2016. "Partial decentralization and its influence on local governments’ spending policy. An analysis of spending for teachers and other resources needed for schools," Working Papers 2016-38, Faculty of Economic Sciences, University of Warsaw.
    4. Edoardo Di Porto & Angela Parenti & Sonia Paty & Zineb Abidi, 2017. "Local government cooperation at work: a control function approach," Journal of Economic Geography, Oxford University Press, vol. 17(2), pages 435-463.
    5. Daniel Gama e Colombo & Jorge Martinez-Vazquez, 2018. "Fiscal Decentralization and Public R&D Policy: A Country Panel Analysis," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1820, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    6. Borge, Lars-Erik, 2005. "Strong politicians, small deficits: evidence from Norwegian local governments," European Journal of Political Economy, Elsevier, vol. 21(2), pages 325-344, June.
    7. John Ashworth & Bruno Heyndels, 2005. "Government Fragmentation And Budgetary Policy In "Good" And "Bad" Times In Flemish Municipalities," Economics and Politics, Wiley Blackwell, vol. 17, pages 245-263, July.
    8. Jia, Junxue & Liu, Yongzheng & Martinez-Vazquez, Jorge & Zhang, Kewei, 2021. "Vertical fiscal imbalance and local fiscal indiscipline: Empirical evidence from China," European Journal of Political Economy, Elsevier, vol. 68(C).
    9. Borge, Lars-Erik & Brueckner, Jan K. & Rattsø, Jorn, 2014. "Partial fiscal decentralization and demand responsiveness of the local public sector: Theory and evidence from Norway," Journal of Urban Economics, Elsevier, vol. 80(C), pages 153-163.
    10. Di Liddo Giuseppe & Longobardi Ernesto & Porcelli Francesco, 2019. "Fiscal Imbalances and Fiscal Effort of Local Governments," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 19(3), pages 1-7, July.
    11. Lars-Erik Borge & Jan K. Brueckner & Jorn Rattso, 2012. "Partial Fiscal Decentralization and Public-Sector Heterogeneity: Theory and Evidence from Norway," CESifo Working Paper Series 3954, CESifo.
    12. Jia, Junxue & Ding, Siying & Liu, Yongzheng, 2020. "Decentralization, incentives, and local tax enforcement," Journal of Urban Economics, Elsevier, vol. 115(C).

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