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Fiscal Decentralization and Public Sector Employment: A Cross-Country Analysis

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Author Info
Jorge Martinez-Vazquez () (International Studies Program. Andrew Young School of Policy Studies, Georgia State University)
Ming-Hung Yao () (Department of Economics, Tunghai University, Taichung, Taiwan National University of Ireland Galway)

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Abstract

This paper investigates the relationship between public sector employment and fiscal decentralization. We develop a theoretical framework modeling the interactions between the central and sub-national executives regarding the level of public employment at the central and sub-national government levels. In our empirical work, based on a large cross-country dataset, we find that, ceteris paribus, the level of total public sector employees in a country increases with its level of fiscal decentralization. Even though central government employment decreases with decentralization, this is more than fully offset by the increase in employment at the sub-national level accompanying decentralization. Our empirical results also indicate that the relationship between GDP per capita and public sector employment is not monotonic but quadratic, that total public sector employment is higher in unitary countries vis-à-vis federal countries, and that public employment increases with the country’s international economic openness.

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Paper provided by International Studies Program, Andrew Young School of Policy Studies, Georgia State University in its series International Studies Program Working Paper Series, at AYSPS, GSU with number paper0903.

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Length: 49 pages
Date of creation: 01 Mar 2009
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Handle: RePEc:ays:ispwps:paper0903

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Related research
Keywords: fiscal decentralization; public sector employment; public sector size;

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  1. Alesina, Alberto & Baqir, Reza & Easterly, William, 2000. "Redistributive Public Employment," Journal of Urban Economics, Elsevier, vol. 48(2), pages 219-241, September. [Downloadable!] (restricted)
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  2. Forbes, Kevin F & Zampelli, Ernest M, 1989. "Is Leviathan a Mythical Beast?," American Economic Review, American Economic Association, vol. 79(3), pages 568-77, June. [Downloadable!] (restricted)
  3. Nelson, Michael A, 1987. "Searching for Leviathan: Comment and Extension," American Economic Review, American Economic Association, vol. 77(1), pages 198-204, March. [Downloadable!] (restricted)
  4. Cameron A. Shelton, 2007. "The Size and Composition of Government Expenditure," Wesleyan Economics Working Papers 2007-002, Wesleyan University, Department of Economics. [Downloadable!]
  5. 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)
  6. José Manuel Marqués Sevillano & Joan Rosselló Villallonga, 2004. "Public employment and regional redistribution in Spain," Hacienda Pública Española, IEF, vol. 170(3), pages 59-80, september. [Downloadable!]
  7. John Joseph Wallis & Wallace E. Oates, 1988. "Decentralization in the Public Sector: An Empirical Study of State and Local Government," NBER Chapters, in: Fiscal Federalism: Quantitative Studies, pages 5-32 National Bureau of Economic Research, Inc. [Downloadable!]
  8. Shelton, Cameron A., 2007. "The size and composition of government expenditure," Journal of Public Economics, Elsevier, vol. 91(11-12), pages 2230-2260, December. [Downloadable!] (restricted)
  9. Caroline van Rijckeghem & Aart Kraay, 1995. "Employment and Wages in the Public Sector--A Cross-Country Study," IMF Working Papers 95/70, International Monetary Fund.
  10. Khemani, Stuti, 2004. "Political cycles in a developing economy: effect of elections in the Indian States," Journal of Development Economics, Elsevier, vol. 73(1), pages 125-154, February. [Downloadable!] (restricted)
  11. Jorge Martinez-Vazquez & Robert McNab, 1997. "Fiscal Decentralization, Economic Growth, and Democratic Governance," International Studies Program Working Paper Series, at AYSPS, GSU paper9707, International Studies Program, Andrew Young School of Policy Studies, Georgia State University. [Downloadable!]
  12. Ebel, Robert D. & Yilmaz, Serdar, 2002. "On the measurement and impact of fiscal decentralization," Policy Research Working Paper Series 2809, The World Bank. [Downloadable!]
  13. Panizza, Ugo, 1999. "On the determinants of fiscal centralization: Theory and evidence," Journal of Public Economics, Elsevier, vol. 74(1), pages 97-139, October. [Downloadable!] (restricted)
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