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Is Fiscal Decentralization Harmful for Economic Growth? Evidence from the OECD Countries

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  • Roberto Ezcurra
  • Andrés Rodríguez-Pose

Abstract

The global drive towards decentralization has been increasingly justified on the basis that greater transfers of resources to subnational governments are expected to deliver greater efficiency in the provision of public goods and services and greater economic growth. This paper examines whether this is the case, by analysing the relationship between decentralization and economic growth in 21 OECD countries during the period between 1990 and 2005 and controlling not only for fiscal decentralization, but also for political and administrative decentralization. The results point towards a negative and significant association between fiscal decentralization and economic growth in the sample countries, a relationship which is robust to the inclusion of a series of control variables and to differences in expenditure preferences by subnational governments. The impact of political and administrative decentralization on economic growth is weaker and sensitive to the definition and measurement of political decentralization.

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Bibliographic Info

Paper provided by Spatial Economics Research Centre, LSE in its series SERC Discussion Papers with number 0051.

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Date of creation: May 2010
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Handle: RePEc:cep:sercdp:0051

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Web page: http://www.spatialeconomics.ac.uk/SERC/publications/default.asp

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Keywords: Fiscal decentralization; political decentralization; administrative decentralization; economic growth; OECD;

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  1. Gernot Doppelhofer & Ronald I. Miller & Xavier Sala-i-Martin, 2000. "Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (Bace) Approach," OECD Economics Department Working Papers 266, OECD Publishing.
  2. Jorge Martinez-Vazquez & Robert McNab, 2001. "Fiscal Decentralization and Economic Growth," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0101, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  3. Ulrich Thießen, 2003. "Fiscal Decentralisation and Economic Growth in High-Income OECD Countries," Fiscal Studies, Institute for Fiscal Studies, vol. 24(3), pages 237-274, September.
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Cited by:
  1. Díaz Serrano, Lluís & Rodríguez Pose, Andrés, 2011. "Decentralization, happiness and the perception of institutions," Working Papers 2072/151812, Universitat Rovira i Virgili, Department of Economics.
  2. Heshmati, Almas & Kumbhakar, Subal C., 2011. "A General Model of Technical Change with an Application to the OECD Countries," IZA Discussion Papers 6004, Institute for the Study of Labor (IZA).
  3. Robert P. Inman & Daniel L. Rubinfeld, 2012. "Understanding the Democratic Transition in South Africa," NBER Working Papers 17799, National Bureau of Economic Research, Inc.
  4. Inman, Robert P. & Rubinfeld, Daniel L., 2012. "Understanding the Democratic Transition in South Africa," Berkeley Olin Program in Law & Economics, Working Paper Series qt4mp5t4ff, Berkeley Olin Program in Law & Economics.

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