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On the link between fiscal decentralization and public debt in OECD countries

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  • Thushyanthan Baskaran

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Abstract

Excessive borrowing by subnational governments is considered to be one of the perils of fiscal decentralization. On the other hand, fiscal decentralization might ensure the scal stability of the public sector by constraining Leviathan governments. Since the impact of decentralized government on fiscal outcomes is therefore ambiguous from a theoretical perspective, we explore this question empirically with a panel of 17 OECD countries over the 1975-2001 period. Our findings suggest that expenditure decentralization signicantly reduces public indebtedness, whereas tax decentralization and vertical fiscal imbalances are insignicant.

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File URL: http://hdl.handle.net/10.1007/s11127-009-9570-4
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Bibliographic Info

Article provided by Springer in its journal Public Choice.

Volume (Year): 145 (2010)
Issue (Month): 3 (December)
Pages: 351-378

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Handle: RePEc:kap:pubcho:v:145:y:2010:i:3:p:351-378

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Web page: http://www.springerlink.com/link.asp?id=100332

Related research

Keywords: Fiscal decentralization; Public debt; Soft budget constraints; H71; H77; H30;

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Citations

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Cited by:
  1. Karolina Kaiser & Emmanuelle Taugourdeau, 2013. "The timing of elections in federations: a disciplining device against soft budget constraints?," Public Choice, Springer, vol. 154(3), pages 197-215, March.
  2. Aristovnik, Aleksander, 2012. "Fiscal decentralization in Eastern Europe: a twenty-year perspective," MPRA Paper 39316, University Library of Munich, Germany.
  3. Eyraud, Luc & Lusinyan, Lusine, 2013. "Vertical fiscal imbalances and fiscal performance in advanced economies," Journal of Monetary Economics, Elsevier, vol. 60(5), pages 571-587.
  4. Baskaran, Thushyanthan, 2011. "Soft budget constraints and strategic interactions in subnational borrowing: Evidence from the German States, 1975-2005," MPRA Paper 32537, University Library of Munich, Germany.
  5. Izabela Karpowicz, 2012. "Narrowing Vertical Fiscal Imbalances in Four European Countries," IMF Working Papers 12/91, International Monetary Fund.
  6. Thushyanthan Baskaran, 2012. "Tax Decentralization and Public Deficits in OECD Countries," Publius: The Journal of Federalism, Oxford University Press, vol. 42(4), pages 688-707, October.
  7. 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.
  8. Luc Eyraud & Lusine Lusinyan, 2011. "Decentralizing Spending More Than Revenue," IMF Working Papers 11/226, International Monetary Fund.
  9. Eichler, Stefan & Hofmann, Michael, 2013. "Sovereign default risk and decentralization: Evidence for emerging markets," European Journal of Political Economy, Elsevier, vol. 32(C), pages 113-134.
  10. Benjamin Larin & Bernd Süssmuth, 2014. "Fiscal Autonomy and Fiscal Sustainability: Subnational Taxation and Public Indebtedness in Contemporary Spain," CESifo Working Paper Series 4726, CESifo Group Munich.
  11. Gu, Gyun Cheol, 2012. "Developing Composite Indicators for Fiscal Decentralization: Which Is The Best Measure For Whom?," MPRA Paper 43032, University Library of Munich, Germany.

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