This paper explores the link between fiscal decentralization and government size in Latin America. While most related work attempts to test Brennan and Buchanan's "Liviathan" hypothesis, here the emphasis is placed on a different channel: the potential for decentralization to aggravate the common pool problem. In addition to the degree of expenditure decentralization, we consider the importance of vertical fiscal imbalance, as well as some institutional variables related to the nature of intergovernmental relations which can affect the ability of some jurisdictions to shift the cost of their local programs onto others: the degree to which intergovernmental transfers are discretional, and the degree to which subnational governments have borrowing autonomy. We find that decentralization tends to produce larger governments, but this effect is particularly important in cases where vertical imbalance is high, transfers are discretional and the degree of borrowing autonomy of subnational governments is large.
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Volume (Year): II (1999) Issue (Month): (November) Pages: 357-391 Download reference. The following formats are available: HTML
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Find related papers by JEL classification: H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Grossman, Gene M & Helpman, Elhanan, 1994.
"Protection for Sale,"
American Economic Review,
American Economic Association, vol. 84(4), pages 833-50, September.
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Gene M. Grossman & Elhanan Helpman, 1992.
"Protection For Sale,"
NBER Working Papers
4149, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)