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Fiscal decentralization and macroeconomic management

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  • Anwar Shah

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Abstract

The purpose of this paper is to address a central question in fiscal federalism - whether or not fiscal decentralization implies serious risks for fiscal discipline and macroeconomic management for the nation as a whole. This paper addresses this important issue by drawing upon the existing evidence regarding macro management and fiscal institutions in federal and unitary countries. This is supplemented by cross country regression analysis plus the analysis of two case studies: the Brazilian federation and the unitary regime in China. The main conclusion of the paper is that decentralized fiscal systems offer a greater potential for improved macroeconomic governance than centralized fiscal regimes. This is because the challenges posed by fiscal decentralization are recognized and they shape the design of countervailing institutions in federal countries to overcome adverse incentives associated with incomplete contracts or the “common property” resource management problems or with rent seeking behaviors. Copyright Springer Science + Business Media, LLC 2006

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Bibliographic Info

Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 13 (2006)
Issue (Month): 4 (August)
Pages: 437-462

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Handle: RePEc:kap:itaxpf:v:13:y:2006:i:4:p:437-462

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Web page: http://www.springerlink.com/link.asp?id=102915

Related research

Keywords: Federalism; Fiscal decentralization; Fiscal and monetary policy institutions; Fiscal rules; Macroeconomic management;

References

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  17. Shah, Anwar, 2004. "Fiscal decentralization in developing and transition economies: progress, problems, and the promise," Policy Research Working Paper Series 3282, The World Bank.
  18. Cull, Robert & Xu, Lixin Colin, 2003. "Who gets credit? The behavior of bureaucrats and state banks in allocating credit to Chinese state-owned enterprises," Journal of Development Economics, Elsevier, vol. 71(2), pages 533-559, August.
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Citations

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Cited by:
  1. Usman Mustafa, 2011. "Fiscal Federalism in Pakistan: The 7th National Finance Commission Awardand Its Implications," PIDE-Working Papers 2011:73, Pakistan Institute of Development Economics.
  2. Edoardo Di Porto & Federico Revelli, 2009. "Central command, local hazard and the race to the top," Working Papers 2009/26, Institut d'Economia de Barcelona (IEB).
  3. Iqbal, Nasir & Nawaz, Saima, 2010. "Fiscal Decentralization and Macroeconomic Stability: Theory and Evidence from Pakistan," MPRA Paper 27184, University Library of Munich, Germany.
  4. Oto-Peralías, Daniel & Romero-Ávila, Diego & Usabiaga, Carlos, 2013. "Does fiscal decentralization mitigate the adverse effects of corruption on public deficits?," European Journal of Political Economy, Elsevier, vol. 32(C), pages 205-231.
  5. Philip Bodman & Harry Campbell & Kelly-Ana Heaton & Andrew Hodge, . "Fiscal Decentralisation, Macroeconomic Conditions and Economic Growth in Australia," MRG Discussion Paper Series 2609, School of Economics, University of Queensland, Australia.

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