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Fiscal decentralization and macroeconomic management

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Author Info
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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File URL: http://hdl.handle.net/10.1007/s10797-006-8948-1
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Publisher 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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Related research
Keywords: Federalism; Fiscal decentralization; Fiscal and monetary policy institutions; Fiscal rules; Macroeconomic management;

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Beck, Thorsten & Crivelli, Juan Miguel & Summerhill, William, 2005. "State bank transformation in Brazil - choices and consequences," Journal of Banking & Finance, Elsevier, vol. 29(8-9), pages 2223-2257, August. [Downloadable!] (restricted)
    Other versions:
  2. Inman, Robert P & Fitts, Michael A, 1990. "Political Institutions and Fiscal Policy: Evidence from the U.S. Historical Record," Journal of Law, Economics and Organization, Oxford University Press, vol. 6(0), pages 79-132.
  3. Shah, Anwar, 2004. "Fiscal decentralization in developing and transition economies: progress, problems, and the promise," Policy Research Working Paper Series 3282, The World Bank. [Downloadable!]
  4. Shah, A., 1991. "The new fiscal federalism in Brazil," World Bank - Discussion Papers 124, World Bank.
    Other versions:
  5. Jun Ma, 1995. "Macroeconomic management and intergovernmental relations in China," Policy Research Working Paper Series 1408, The World Bank. [Downloadable!]
  6. 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. [Downloadable!] (restricted)
  7. Oates, Wallace E, 1985. "Searching for Leviathan: An Empirical Study," American Economic Review, American Economic Association, vol. 75(4), pages 748-57, September. [Downloadable!] (restricted)
  8. Robert P. Inman & Daniel L. Rubinfeld, 1991. "Fiscal Federalism in Europe: Lessons From the United States Experience," NBER Working Papers 3941, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Carlos Alberto Longo, 1994. "Federal problems with VAT in Brazil," Revista Brasileira de Economia, Graduate School of Economics, Getulio Vargas Foundation (Brazil), vol. 48(1), April.
  10. Krug, B. & Zhu, Z. & Hendrischke, H., 2004. "China’s emerging tax regime: Devolution, fiscal federalism, or tax farming?," Research Paper ERS-2004-113-ORG Revision, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni. [Downloadable!]
  11. Eckaus, R. S., 2003. "Some consequences of fiscal reliance on extrabudgetary revenues in China," China Economic Review, Elsevier, vol. 14(1), pages 72-88. [Downloadable!] (restricted)
  12. Suzanne Kennedy & Janine Robbins, . "The Role of Fiscal Rules in Determining Fiscal Performance," Working Papers-Department of Finance Canada 2001-16, Department of Finance Canada. [Downloadable!]
  13. Cukierman, Alex & Webb, Steven B & Neyapti, Bilin, 1992. "Measuring the Independence of Central Banks and Its Effect on Policy Outcomes," World Bank Economic Review, Oxford University Press, vol. 6(3), pages 353-98, September.
  14. Niskanen, William A, 1992. "The Case for a New Fiscal Constitution," Journal of Economic Perspectives, American Economic Association, vol. 6(2), pages 13-24, Spring. [Downloadable!] (restricted)
  15. Sheikh, Munir A & Winer, Stanley L, 1977. "Stabilization and Nonfederal Behaviour in an Open Federal State: An Econometric Study of the Fixed Exchange Rate, Canadian Case," Empirical Economics, Springer, vol. 2(3), pages 195-211.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. 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. [Downloadable!]
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