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Decentralization, Fiscal Independence, and Poverty in the Philippines

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  • Tristan Canare
  • Jamil Paolo Francisco

Abstract

Decentralization is a common public sector reform in developing countries. Its basic rationale is that local governments have an informational advantage regarding the needs and preferences of consumers. However, decentralization also has drawbacks. Foremost is the efficiency advantage of the central government in providing public services because of economies of scale and better access to resources. This study looked at the relationship between decentralization and poverty using data from Philippine cities and municipalities. Results suggest that decentralization, as represented by fiscal independence and measured by the share of locally sourced revenues to total local government revenues, is indeed associated with lower poverty. However, this effect is not linear—the marginal effect of decentralization on poverty diminishes as decentralization increases. Moreover, decentralization moderates the positive effect of good governance on poverty reduction and the magnitude of the relationship between poverty and decentralization is stronger in poorer municipalities than in richer ones.

Suggested Citation

  • Tristan Canare & Jamil Paolo Francisco, 2019. "Decentralization, Fiscal Independence, and Poverty in the Philippines," Public Budgeting & Finance, Wiley Blackwell, vol. 39(4), pages 94-117, December.
    • Handle: RePEc:bla:pbudge:v:39:y:2019:i:4:p:94-117
    DOI: 10.1111/pbaf.12241
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    Cited by:

    1. Rodríguez-Pose, Andrés & Tselios, Vassilis, 2022. "Can decentralisation help address poverty and social exclusion in Europe?," CEPR Discussion Papers 17471, C.E.P.R. Discussion Papers.
    2. Qiongzhi Liu & Jing Ren, 2023. "Local Fiscal Pressure and Enterprise Environmental Protection Investment under COVID-19: Evidence from China," Sustainability, MDPI, vol. 15(6), pages 1-20, March.
    3. Tsovinar J. Karapetyan & Arpenik Muradyan & Vanine A. Yeranosyan & Erik M. Grigoryan, 2021. "The structural changes in Armenian Community budgets within the process of community consolidation," Regional Science Policy & Practice, Wiley Blackwell, vol. 13(3), pages 559-572, June.
    4. Tristan Canare, 2022. "Decentralization and welfare: Evidence from a panel of countries," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 93(3), pages 767-796, September.

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