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How Regional Inequality Affects Fiscal Decentralisation: Accounting for the Autonomy of Subcentral Governments

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  • Agnese Sacchi

    (Faculty of Economics, ‘Universitas Mercatorum’ University, via Appia Pignatelli 62, 00178 Rome, Italy)

  • Simone Salotti

    (Department of Accounting, Finance and Economics, Oxford Brookes University, Wheatley Campus, Oxford OX33 1HX, England)

Abstract

The aim of this paper is to analyse the influence of regional economic disparities on the fiscal decentralisation processes in twenty-one OECD countries over the period 1981 to 2005. We use novel and robust measures of fiscal decentralisation based on different degrees of autonomy over both expenditures and taxes granted to subcentral governments. Our results show that high regional economic disparities call for lower fiscal decentralisation. This could be interpreted as the outcome of a bargaining process driven by the relative strength and different incentives of rich and poor regions. Moreover, the extent to which responsibility and decision powers are really left to subcentral governments appears to be crucial. Thus, from a positive point of view, equity considerations seem to suggest avoidance of fiscal decentralisation processes in countries with significant regional economic disparities, notwithstanding the well-known efficiency gains.

Suggested Citation

  • Agnese Sacchi & Simone Salotti, 2014. "How Regional Inequality Affects Fiscal Decentralisation: Accounting for the Autonomy of Subcentral Governments," Environment and Planning C, , vol. 32(1), pages 144-162, February.
    • Handle: RePEc:sae:envirc:v:32:y:2014:i:1:p:144-162
    DOI: 10.1068/c1241r
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    References listed on IDEAS

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    Cited by:

    1. Konstantin Gluschenko, 2018. "Measuring regional inequality: to weight or not to weight?," Spatial Economic Analysis, Taylor & Francis Journals, vol. 13(1), pages 36-59, January.
    2. Nupur Nirola & Sohini Sahu & Atrayee Choudhury, 2022. "Fiscal decentralization, regional disparity, and the role of corruption," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 68(3), pages 757-787, June.
    3. Gluschenko, Konstantin, 2015. "‘Williamson’s Fallacy’ in Estimation of Inter-Regional Inequality," MPRA Paper 71075, University Library of Munich, Germany, revised 03 May 2016.
    4. Siburian, Matondang Elsa, 2021. "Fiscal Decentralization, Regional Income Inequality, and the Provision of Local Public Goods: Evidence from Indonesia," Journal of Economic Development, The Economic Research Institute, Chung-Ang University, vol. 46(4), pages 87-103, December.
    5. Bellofatto, Antonio Andrés & Besfamille, Martín, 2021. "Tax decentralization notwithstanding regional disparities," Journal of Urban Economics, Elsevier, vol. 123(C).
    6. Sacchi, Agnese & Salotti, Simone, 2014. "The asymmetric nature of fiscal decentralization: theory and practice," MPRA Paper 54506, University Library of Munich, Germany.
    7. Yongzheng Liu & Jorge Martinez-Vazquez & Alfred M. Wu, 2017. "Fiscal decentralization, equalization, and intra-provincial inequality in China," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(2), pages 248-281, April.
    8. Mario Jametti & Marcelin Joanis, 2020. "Elections and de facto expenditure decentralization in Canada," Economics of Governance, Springer, vol. 21(3), pages 275-297, September.
    9. Makreshanska, Suzana & Petrevski, Goran, 2016. "Decentralization, fiscal transfers and income inequality in Central and Eastern European countries," MPRA Paper 82181, University Library of Munich, Germany, revised 16 Oct 2017.
    10. Matondang Elsa Siburian, 2020. "Fiscal Decentralization, Regional Income Inequality, and the Provision of Local Public Goods: Evidence from Indonesia," Working Papers 2001, Waseda University, Faculty of Political Science and Economics.
    11. Muinelo-Gallo, Leonel & Rodriguez-Miranda, Adrián & Castro-Scavone, Pablo, 2017. "Intergovernmental transfers and regional income inequalities in Uruguay," MPRA Paper 76983, University Library of Munich, Germany.
    12. Qurat ul Ain & Yan Jie & Larisa Ivașcu & Syed Ghulam Meran Shah & Tahir Yousaf, 2023. "Whether rising tide has lifted all the boats? Effect of inter‐governmental transfers on household income inequality in Pakistan," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(1), pages 430-447, January.
    13. Rosella Levaggi & Francesco Menoncin, 2017. "Would less regional income distribution justify the present call for devolution?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(5), pages 780-799, September.

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