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Fiscal decentralisation and the size of government: a review of the empirical literature

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  • Silvia Golem

    (Faculty of Economics, Split)

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    Abstract

    Within the public choice framework, it has been argued that decentralised authority over the provision and financing of certain public goods and services induces competitive pressure among different governmental units and consequently reduces the size of government. However, in many countries, fiscal decentralisation seems to have occurred almost exclusively through devolution of expenditure activities, without the accompanying devolution of the tax authority. We address this issue in detail, and discuss the repercussions of the resulting vertical fiscal imbalance on the total size of government. We also discuss alternative, demand-side channels of the influence of fiscal decentralisation on the size of government. In the empirical literature that we review, little consensus on the relationship between fiscal decentralisation and the size of government is reached.

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    File URL: http://www.ijf.hr/eng/FTP/2010/1/golem.pdf
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    Bibliographic Info

    Article provided by Institute of Public Finance in its journal Financial Theory and Practice.

    Volume (Year): 34 (2010)
    Issue (Month): 1 ()
    Pages: 53-69

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    Handle: RePEc:ipf:finteo:v:34:y:2010:i:1:p:53-69

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    Keywords: the size of government; fiscal decentralisation; intergovernmental grants; sub-national expenditures; sub-national own-source revenues;

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    1. John Anderson & Hendrik van den Berg, 1998. "Fiscal Decentralization and Government Size: An International Test for Leviathan Accounting for Unmeasured Economic Activity," International Tax and Public Finance, Springer, vol. 5(2), pages 171-186, May.
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