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Fiscal Decentralization, Governance, And Economic Performance: A Reconsideration

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  • DANIEL TREISMAN
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    Abstract

    In countries with tax-sharing systems, assigning local governments a large share of locally generated revenues is often thought to promote economic development. The more local officials benefit from local economic activity, the more supportive of business and less corrupt they should be, resulting in higher output. Some attribute China's rapid growth to its high local retention rates and Russia's 1990s stagnation to the central clawback of local revenues. I show that such arguments ignore an important actor in the game - the central government. If increasing the local tax share improves incentives for local authorities, it worsens them for central officials. The net effect on output is indeterminate. Copyright 2006 Blackwell Publishing Ltd.

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Economics & Politics.

    Volume (Year): 18 (2006)
    Issue (Month): 2 (07)
    Pages: 219-235

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    Handle: RePEc:bla:ecopol:v:18:y:2006:i:2:p:219-235

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    Cited by:
    1. Andreas Kyriacou & Oriol Roca sagalés, 2009. "Fiscal descentralization and the quality of government: evidence from panel data," Hacienda Pública Española, IEF, vol. 189(2), pages 131-155, June.
    2. Lisa Grazzini & Alessandro Petretto, 2007. "Voting on Devolution in a Federal Country with a Bicameral National System," Working Papers - Economics wp2007_09, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
    3. Bodman, Philip & Campbell, Harry & Le, Thanh, 2012. "Public investment, taxation, and long-run output in economies with multi-level governments," Economic Modelling, Elsevier, vol. 29(5), pages 1603-1611.
    4. repec:spo:wpecon:info:hdl:2441/10059 is not listed on IDEAS
    5. Malesky, Edmund & Nguyen, Cuong & Tran, Anh, 2013. "The Impact of Recentralization on Public Services: A Difference-in-Differences Analysis of the Abolition of Elected Councils in Vietnam," MPRA Paper 54187, University Library of Munich, Germany.
    6. Fan, C. Simon & Lin, Chen & Treisman, Daniel, 2009. "Political decentralization and corruption: Evidence from around the world," Journal of Public Economics, Elsevier, vol. 93(1-2), pages 14-34, February.
    7. Henrik Enderlein & Iain Begg & Mojmir Mrak & Jacques Le Cacheux, 2008. "Financing of the European Union Budget," Sciences Po publications Contract No 30-CE-0122101, Sciences Po.
    8. Bordignon, Massimo & Colombo, Luca & Galmarini, Umberto, 2008. "Fiscal federalism and lobbying," Journal of Public Economics, Elsevier, vol. 92(12), pages 2288-2301, December.
    9. Frederico Cavazzini & Pedro Picaluga Nevado, 2013. "Fighting corruption with strategy," OBEGEF Working Papers 016, OBEGEF - Observatório de Economia e Gestão de Fraude & OBEGEF Working Papers on Fraud and Corruption.

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