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Decentralization and Economic Development: An Evolutionary Approach

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  • MOTOHIRO SATO
  • SHINJI YAMASHIGE

Abstract

There has been a growing interest in relationship between economic development and fiscal decentralization. Empirical studies, however, are not conclusive regarding their correlation or causality. The present paper aims to provide a theoretical foundation for better understanding of this issue. Developing a dynamic model, we argue that decentralization and development proceed hand in hand, interacting one another, and that the relation between them is not monotonic but evolutionary. We also show that there will exist multiple steady states and that political decision of fiscal decentralization in general fails to lead the economy to the most desirable one.

Suggested Citation

  • Motohiro Sato & Shinji Yamashige, 2005. "Decentralization and Economic Development: An Evolutionary Approach," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(3), pages 497-520, August.
    • Handle: RePEc:bla:jpbect:v:7:y:2005:i:3:p:497-520
    DOI: 10.1111/j.1467-9779.2005.00214.x
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    Cited by:

    1. Francisco J. Delgado, 2021. "On the Determinants of Fiscal Decentralization: Evidence From the EU," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 23(56), pages 206-206, February.
    2. Abdul Jalil, Ahmad Zafarullah, 2009. "Decentralization, Subnational Governments' Behaviour and Macroeconomic Instability: The Case of Malaysia," MPRA Paper 19071, University Library of Munich, Germany.
    3. Pierre Salmon, 2013. "Decentralization and growth: what if the cross-jurisdiction approach had met a dead end?," Constitutional Political Economy, Springer, vol. 24(2), pages 87-107, June.
    4. 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.

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