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Fiscal Decentralization and Governance

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Author Info

  • Yener Altunbaş

    (The Business School, Bangor University, Hen Goleg, Gwynedd, United Kingdom)

  • John Thornton

    ()
    (The Business School, Bangor University, Hen Goleg, Gwynedd, United Kingdom)

Abstract

The literature on the economics of fiscal decentralization stresses the potential for both positive and negative effects on governance in a country. Using a data set comprising sixty-four developed and developing economies and several different measures of fiscal decentralization, the authors find that countries in which a larger share of fiscal revenues and expenditures are located at the level of subnational governments appear to be less corrupt. The authors also find that the beneficial impact of fiscal decentralization on corruption is mitigated in the presence of mechanisms enforcing vertical administrative decentralization. The results indicate that fiscal decentralization appears to reduce corruption even in countries in which there is a high degree of political representation. The results are robust to alternative estimation methodologies and to specifications that control for the influence of variables that have been identified as affecting governance.

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Bibliographic Info

Article provided by in its journal Public Finance Review.

Volume (Year): 40 (2012)
Issue (Month): 1 (January)
Pages: 66-85

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Handle: RePEc:sae:pubfin:v:40:y:2012:i:1:p:66-85

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Keywords: fiscal decentralization; governance; corruption; cross section; panel estimation;

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Cited by:
  1. Kumara, Ajantha Sisira & Handapangoda, Wasana Sampath, 2014. "Political environment a ground for public sector corruption? Evidence from a cross-country analysis," MPRA Paper 54721, University Library of Munich, Germany, revised 22 Mar 2014.
  2. Paul Smoke, 2013. "Why Theory and Practice are Different: The Gap Between Principles and Reality in Subnational Revenue Systems," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1313, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.

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