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Decentralization and welfare: theory and an empirical analysis using Philippine data

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  • Tristan Canare

    (Department of Economics, School of Social Sciences, Ateneo de Manila University, Katipunan Ave., Loyola Heights, Quezon City, Metro Manila, Philippines 1108)

Abstract

This study theoretically and empirically analyzes the relationship between decentralization and welfare. The model identifies conditions in which a decentralized government is utility-maximizing compared to a centralized one. The empirical analysis utilized data from Philippine provinces to study the relationship between several decentralization indicators and welfare, as measured by per capita income, human development index, and poverty. Results suggest that fiscal independence, or the ability of local governments to generate their own revenues to finance their own expenditures rather than relying on central government transfers, is positively associated with per capita income and HDI. Moreover, this relationship is stronger when governance is better and weaker among lower-income provinces. In contrast, a higher number of local government units per population is linked to adverse development outcomes, and this association is stronger among lower-income provinces and weaker among those with good governance.

Suggested Citation

  • Tristan Canare, 2021. "Decentralization and welfare: theory and an empirical analysis using Philippine data," Public Sector Economics, Institute of Public Finance, vol. 45(1), pages 93-123.
    • Handle: RePEc:ipf:psejou:v:45:y:2021:i:1:p:93-123
    DOI: 10.3326/pse.45.1.3
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    Cited by:

    1. 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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    More about this item

    Keywords

    decentralization; welfare; fiscal independence; Philippines;
    All these keywords.

    JEL classification:

    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General

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