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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)

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.

Suggested Citation

  • Silvia Golem, 2010. "Fiscal decentralisation and the size of government: a review of the empirical literature," Financial Theory and Practice, Institute of Public Finance, vol. 34(1), pages 53-69.
    • Handle: RePEc:ipf:finteo:v:34:y:2010:i:1:p:53-69
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    References listed on IDEAS

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    1. Brennan,Geoffrey & Buchanan,James M., 2006. "The Power to Tax," Cambridge Books, Cambridge University Press, number 9780521027922.
    2. 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;International Institute of Public Finance, vol. 5(2), pages 171-186, May.
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    Cited by:

    1. Suzana Makreshanska-Mladenovska & Goran Petrevski, 2019. "Fiscal Decentralisation and Government Size: Evidence from a Panel of European Countries," Hacienda Pública Española / Review of Public Economics, IEF, vol. 229(2), pages 33-58, June.
    2. Qiao, Mo & Ding, Siying & Liu, Yongzheng, 2019. "Fiscal decentralization and government size: The role of democracy," European Journal of Political Economy, Elsevier, vol. 59(C), pages 316-330.
    3. Choudhury, Atrayee & Sahu, Sohini, 2022. "Revisiting the nexus between fiscal decentralization and government size - The role of ethnic fragmentation," European Journal of Political Economy, Elsevier, vol. 75(C).
    4. Agnese Sacchi & Simone Salotti, 2017. "The influence of decentralized taxes and intergovernmental grants on local spending volatility," Regional Studies, Taylor & Francis Journals, vol. 51(4), pages 507-522, April.
    5. Samuel Kwabena Obeng, 2021. "Fiscal decentralization, democracy and government size: Disentangling the complexities," Journal of International Development, John Wiley & Sons, Ltd., vol. 33(6), pages 975-1004, August.
    6. Choudhury, Atrayee & Sahu, Sohini, 2023. "Reconciling the mixed evidence in the fiscal decentralization-government size nexus using panel quantile regression," Economic Modelling, Elsevier, vol. 125(C).
    7. Caldeira, Thiago Costa Monteiro & Ehrl, Philipp & Moreira, Tito Belchior Silva, 2023. "Fiscal decentralization and tax collection: evidence from the rural property tax in Brazil," European Journal of Political Economy, Elsevier, vol. 78(C).
    8. Jorge Martinez-Vazquez & Santiago Lago-Peñas & Agnese Sacchi, 2017. "The Impact Of Fiscal Decentralization: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 31(4), pages 1095-1129, September.
    9. Francois Facchini, 2018. "What Are the Determinants of Public Spending? An Overview of the Literature," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 46(4), pages 419-439, December.
    10. Francis Amagoh & Aloysius Ajab Amin, 2012. "An Examination of the Impacts of Fiscal Decentralization on Economic Growth," International Journal of Business Administration, International Journal of Business Administration, Sciedu Press, vol. 3(6), pages 72-81, November.
    11. Silvia GOLEM & Lena MALEŠEVIC PEROVIC, 2014. "An Empirical Analysis of the Relationship between Fiscal Decentralization and the Size of Government," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 64(1), pages 30-58, February.
    12. Christian Daude & Christine de la Maisonneuve, 2016. "Subnational fiscal sustainability, risk sharing and “fiscal fatigue” in Colombia," Hacienda Pública Española / Review of Public Economics, IEF, vol. 219(4), pages 137-160, December.
    13. Jianing Zhou & Fan Yang, 2023. "Impact of Chinese-Style Fiscal Decentralization on Urban–Rural Integration: Based on Factor Allocation," Sustainability, MDPI, vol. 15(2), pages 1-21, January.
    14. Agata Szymańska, 2021. "Determinants of General Government Social Spending: Evidence from the Eurozone," Ekonomista, Polskie Towarzystwo Ekonomiczne, issue 4, pages 508-528.
    15. Patonov Nikolay Andonov, 2013. "Searching for A Restraint on the European Leviathan," Scientific Annals of Economics and Business, Sciendo, vol. 60(2), pages 1-16, December.
    16. Qurat ul Ain & Tahir Yousaf & Yan Jie & Yasmeen Akhtar, 2020. "The Impact of Devolution on Government Size and Provision of Social Services: Evi¬dence from Pakistan," Hacienda Pública Española / Review of Public Economics, IEF, vol. 234(3), pages 105-135, September.
    17. Tetyana Paliychuk & Serhiy Petrukha & Nataliia Alekseienko, 2020. "Financial Equalization in the Conditions of Reform of the Public Finance Management System," Oblik i finansi, Institute of Accounting and Finance, issue 2, pages 81-92, June.

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