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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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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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Citations

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Cited by:
  1. Furceri, Davide & Sacchi, Agnese & Salotti, Simone, 2014. "Can fiscal decentralization alleviate government consumption volatility?," MPRA Paper 54513, University Library of Munich, Germany.
  2. Diaz-Serrano, Luis & Rodríguez-Pose, Andrés, 2014. "Decentralization and the Welfare State: What Do Citizens Perceive?," MPRA Paper 54123, University Library of Munich, Germany.
  3. Yao, Yang, 2014. "The Chinese Growth Miracle," Handbook of Economic Growth, in: Handbook of Economic Growth, edition 1, volume 2, chapter 7, pages 943-1031 Elsevier.
  4. Diaz-Serrano, Luis & Rodríguez-Pose, Andrés, 2011. "Decentralization, Happiness, and the Perception of Institutions," CEPR Discussion Papers 8356, C.E.P.R. Discussion Papers.
  5. K. L. Devkota, 2014. "Impact of Fiscal Decentralization on Economic Growth in the Districts of Nepal," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1420, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  6. Robert P. Inman & Daniel L. Rubinfeld, 2012. "Understanding the Democratic Transition in South Africa," NBER Working Papers 17799, National Bureau of Economic Research, Inc.
  7. Zareh Asatryan & Lars P. Feld, 2013. "Revisiting the Link between Growth and Federalism: A Bayesian Model Averaging Approach," CESifo Working Paper Series 4357, CESifo Group Munich.
  8. Fidel Perez-Sebastian & Ohad Raveh, 2013. "The natural Resource Curse, Fiscal Decentralization, and Agglomeration Economies," OxCarre Working Papers 112, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  9. Luis Diaz-Serrano & Andrés Rodríguez-Pose, 2012. "Decentralization, Subjective Well-Being And The Perception Of Institutions," ERSA conference papers ersa12p586, European Regional Science Association.
  10. Giannola, A. & Petraglia, C. & Scalera, D., 2011. "Residui fiscali regionali e riforma federalista. Quanto residuerà delle politiche regionali e redistributive?
    [Fiscal residua and federalist reform in Italy. Will regional and redistributive polic
    ," MPRA Paper 30895, University Library of Munich, Germany.
  11. 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).
  12. Pierre Salmon, 2013. "Decentralization and growth: what if the cross-jurisdiction approach had met a dead end?," Constitutional Political Economy, Springer, vol. 24(2), pages 87-107, June.
  13. Oto-Peralías, Daniel & Romero-Ávila, Diego & Usabiaga, Carlos, 2013. "Does fiscal decentralization mitigate the adverse effects of corruption on public deficits?," European Journal of Political Economy, Elsevier, vol. 32(C), pages 205-231.
  14. 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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