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Decentralization and Local Governments' Performance: How Does Fiscal Autonomy Affect Spending Efficiency?

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  • Lorenzo Boetti
  • Massimiliano Piacenza
  • Gilberto Turati

Abstract

All over the world, recent legislative reforms share the goal of increasing fiscal autonomy of lower tiers of governments. The aim of this policy is to reduce vertical fiscal imbalance (VFI) and enhance the efficiency in the provision of public services, via increased accountability of local politicians. The purpose of this paper is to assess whether inefficiency of local governments is really affected by the degree of VFI, relying on a sample of Italian municipalities to study the determinants of spending performance. Consistently with modern fiscal federalism theories, our results show that more fiscally autonomous municipalities exhibit less inefficient behavior, thus supporting the waves of reforms towards the devolution of taxing power to lower government tiers.

Suggested Citation

  • Lorenzo Boetti & Massimiliano Piacenza & Gilberto Turati, 2012. "Decentralization and Local Governments' Performance: How Does Fiscal Autonomy Affect Spending Efficiency?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 68(3), pages 269-302, September.
  • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(201209)68:3_269:dalgph_2.0.tx_2-m
    DOI: 10.1628/001522108X653840
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    References listed on IDEAS

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    1. 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.
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    More about this item

    Keywords

    municipalities; decentralization; fiscal autonomy; electoral accountability; spending inefficiency;
    All these keywords.

    JEL classification:

    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

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