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How Effective Is Fiscal Decentralization for Inequality Reduction in Developing Countries?

Author

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  • Kumba Digdowiseiso

    (Faculty of Economics and Business, University of National, Jakarta 12520, Indonesia)

  • Syed M. Murshed

    (International Institute of Social Studies, Erasmus University Rotterdam, 2518 AX The Hague, The Netherlands)

  • Sylvia I. Bergh

    (International Institute of Social Studies, Erasmus University Rotterdam, 2518 AX The Hague, The Netherlands)

Abstract

The relationship between fiscal decentralization and vertical inequality has long received attention by fiscal federalism theorists. However, horizontal inequality has been largely overlooked. This study will present a novel empirical examination of the relationship between fiscal decentralization, vertical inequality, and horizontal inequality. Specifically, it will focus on how institutional quality and military expenditure affect the fiscal decentralization–inequality nexus across 33 developing countries in the period 1990–2014. Findings indicate that varieties of fiscal authority have a significant effect on distribution of income and ethnic inequality. This depends on the level of institutions and defense spending achieved by these developing countries.

Suggested Citation

  • Kumba Digdowiseiso & Syed M. Murshed & Sylvia I. Bergh, 2022. "How Effective Is Fiscal Decentralization for Inequality Reduction in Developing Countries?," Sustainability, MDPI, vol. 14(1), pages 1-19, January.
    • Handle: RePEc:gam:jsusta:v:14:y:2022:i:1:p:505-:d:717205
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    References listed on IDEAS

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    1. Andrés Rodríguez-Pose & Roberto Ezcurra, 2010. "Does decentralization matter for regional disparities? A cross-country analysis," Journal of Economic Geography, Oxford University Press, vol. 10(5), pages 619-644, September.
    2. Cristian F Sepulveda & Jorge Martinez-Vazquez, 2011. "The Consequences of Fiscal Decentralization on Poverty and Income Equality," Environment and Planning C, , vol. 29(2), pages 321-343, April.
    3. Martinez-Vazquez, Jorge & McNab, Robert M., 2003. "Fiscal Decentralization and Economic Growth," World Development, Elsevier, vol. 31(9), pages 1597-1616, September.
    4. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64(5), pages 416-416.
    5. Bahl, Roy & Martinez-Vazquez, Jorge & Wallace, Sally, 2002. "State and Local Government Choices in Fiscal Redistribution," National Tax Journal, National Tax Association;National Tax Journal, vol. 55(4), pages 723-742, December.
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    Cited by:

    1. Yejin Yoo & Seungbee Choi, 2022. "Effects of Top-Down Balanced Development Strategies on Regional Balance: Evidence from Public Big Data in Korea," Sustainability, MDPI, vol. 14(23), pages 1-26, December.
    2. Nadiia Davydenko & Natalia Wasilewska & Svitlana Boiko & Mirosław Wasilewski, 2022. "Development of Rural Areas in Ukraine in the Context of Decentralization: An Empirical Study," Sustainability, MDPI, vol. 14(11), pages 1-26, May.

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