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Fiscal Decentralization, Commitment and Regional Inequality: Evidence from State-level Cross-sectional Data for the United States

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  • Nobuo Akai

    ()
    (Osaka University)

  • Masayo Hosio

    ()
    (Otemon Gakuin University)

Abstract

Conventional approaches to fiscal decentralization suggest that decentralization lowers the power of redistribution, but recent theories argue that fiscal decentralization can work as a commitment device. The former effect is argued to cause an increase in inter-county inequality, while the latter suggests a decrease. This article first clarifies the relationship between fiscal decentralization and inter-county inequality by using cross-sectional data for the United States. Our result indicates that the achievement of autonomy by fiscal decentralization in poor (low-income) counties contributes to decreased inter-county inequality, but that this effect is not as large as the dominating adverse effect fiscal decentralization has on rich (highincome) counties.

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Bibliographic Info

Article provided by Journal of Income Distribution in its journal Journal of Income Distribution.

Volume (Year): 18 (2009)
Issue (Month): 1 (March)
Pages: 113-129

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Handle: RePEc:jid:journl:y:2009:v:18:i:1:p:113-129

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Keywords: fiscal decentralization; inter-county inequality; commitment;

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  1. Yingyi Qian & Barry R. Weingast, 1997. "Federalism as a Commitment to Preserving Market Incentives," Working Papers 97042, Stanford University, Department of Economics.
  2. Oates, Wallace E., 1993. "Fiscal Decentralization and Economic Development," National Tax Journal, National Tax Association, vol. 46(2), pages 237-43, June.
  3. Akai, Nobuo & Sakata, Masayo, 2002. "Fiscal decentralization contributes to economic growth: evidence from state-level cross-section data for the United States," Journal of Urban Economics, Elsevier, vol. 52(1), pages 93-108, July.
  4. Dapeng Hu & Masahisa Fujita, 2001. "Regional disparity in China 1985-1994: The effects of globalization and economic liberalization," The Annals of Regional Science, Springer, vol. 35(1), pages 3-37.
  5. Robert G. Lynch, 2003. "Estimates of Income and Income Inequality in the United States and in Each of the Fifty States: 1988-1999," Journal of Regional Science, Wiley Blackwell, vol. 43(3), pages 571-588.
  6. Shankar, Raja & Shah, Anwar, 2003. "Bridging the Economic Divide Within Countries: A Scorecard on the Performance of Regional Policies in Reducing Regional Income Disparities," World Development, Elsevier, vol. 31(8), pages 1421-1441, August.
  7. Partridge, Mark D. & Rickman, Dan S. & Levernier, William, 1996. "Trends in U.S. income inequality: Evidence from a panel of states," The Quarterly Review of Economics and Finance, Elsevier, vol. 36(1), pages 17-37.
  8. Richard Morrill, 2000. "Geographic variation in change in income inequality among US states, 1970-1990," The Annals of Regional Science, Springer, vol. 34(1), pages 109-130.
  9. Mark S. McGillivray & Matthew Peter, 1991. "Regional Income Inequality In A Developed Nation: A Cross-Sectional Study Of Australian Sub-State Regions," The Review of Regional Studies, Southern Regional Science Association, vol. 21(2), pages 137-151, Summer.
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Cited by:
  1. Christian Lessmann, 2011. "Regional Inequality and Decentralization - An Empirical Analysis," CESifo Working Paper Series 3568, CESifo Group Munich.
  2. Christian Lessmann, 2009. "Fiscal decentralization and regional disparity: evidence from cross-section and panel data," Environment and Planning A, Pion Ltd, London, vol. 41(10), pages 2455-2473, October.
  3. Leonel Muinelo-Gallo & Andreas P. Kyriacou & Oriol Roca-Sagalés, 2013. "Fiscal decentralization and regional disparities: the importance of good governance," Documentos de Trabajo (working papers) 13-03, Instituto de Economía - IECON.
  4. Ehtisham Ahmad & Giorgio Brosio & Vito Tanzi, 2008. "Local Service Provision in Selected Oecd Countries," IMF Working Papers 08/67, International Monetary Fund.

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