IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_1615.html
   My bibliography  Save this paper

New Evidence on Fiscal Decentralization and the Size of Government

Author

Listed:
  • Jon H. Fiva

Abstract

This paper adds to the literature by utilizing improved data on tax revenue decentralization to re-examine the relationship between fiscal decentralization and the size of government. An econometric analysis using panel data from 18 OECD countries shows that fiscal decentralization matters for both the size and composition of government spending. Tax revenue decentralization is associated with a smaller public sector, while expenditure decentralization is associated with a larger public sector. The former effect seems to be driven by a reduction in social security transfers, while the latter effect seems to be driven by increased government consumption.

Suggested Citation

  • Jon H. Fiva, 2005. "New Evidence on Fiscal Decentralization and the Size of Government," CESifo Working Paper Series 1615, CESifo.
    • Handle: RePEc:ces:ceswps:_1615
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo1_wp1615.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Keen, Michael & Marchand, Maurice, 1997. "Fiscal competition and the pattern of public spending," Journal of Public Economics, Elsevier, vol. 66(1), pages 33-53, October.
    2. Jin, Jing & Zou, Heng-fu, 2002. "How does fiscal decentralization affect aggregate, national, and subnational government size?," Journal of Urban Economics, Elsevier, vol. 52(2), pages 270-293, September.
    3. Philip Grossman, 1989. "Fiscal decentralization and government size: An extension," Public Choice, Springer, vol. 62(1), pages 63-69, July.
    4. Ernesto Stein, 1999. "Fiscal Decentralization and Government Size in Latin America," Journal of Applied Economics, Universidad del CEMA, vol. 2, pages 357-391, November.
    5. Fisman, Raymond & Gatti, Roberta, 2002. "Decentralization and corruption: evidence across countries," Journal of Public Economics, Elsevier, vol. 83(3), pages 325-345, March.
    6. Dani Rodrik, 1998. "Has Globalization Gone Too Far?," Challenge, Taylor & Francis Journals, vol. 41(2), pages 81-94, March.
    7. Ehdaie, Jaber, 1994. "Fiscal decentralization and the size of the government : an extension with evidence from cross-country data," Policy Research Working Paper Series 1387, The World Bank.
    8. Oates, Wallace E, 1985. "Searching for Leviathan: An Empirical Study," American Economic Review, American Economic Association, vol. 75(4), pages 748-757, September.
    9. Dani Rodrik, 1998. "Why Do More Open Economies Have Bigger Governments?," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 997-1032, October.
    10. Ebel, Robert D. & Yilmaz, Serdar, 2002. "On the measurement and impact of fiscal decentralization," Policy Research Working Paper Series 2809, The World Bank.
    11. Brennan,Geoffrey & Buchanan,James M., 2006. "The Power to Tax," Cambridge Books, Cambridge University Press, number 9780521027922.
    12. Ernesto Stein, 1999. "Fiscal Decentralization and Government Size in Latin America," Journal of Applied Economics, Taylor & Francis Journals, vol. 2(2), pages 357-391, November.
    13. Lars P. Feld & Gebhard Kirchgässner & Christoph A. Schaltegger, 2010. "Decentralized Taxation and the Size of Government: Evidence from Swiss State and Local Governments," Southern Economic Journal, John Wiley & Sons, vol. 77(1), pages 27-48, July.
    14. Dan Stegarescu, 2005. "Public sector decentralisation: measurement concepts and recent international trends," Fiscal Studies, Institute for Fiscal Studies, vol. 26(3), pages 301-333, September.
    15. Jorge Martinez-Vazquez & James Alm (ed.), 2003. "Public Finance in Developing and Transitional Countries," Books, Edward Elgar Publishing, number 2595.
    16. Rodden, Jonathan, 2003. "Reviving Leviathan: Fiscal Federalism and the Growth of Government," International Organization, Cambridge University Press, vol. 57(4), pages 695-729, October.
    17. Fiva, Jon H. & Rattso, Jorn, 2006. "Welfare competition in Norway: Norms and expenditures," European Journal of Political Economy, Elsevier, vol. 22(1), pages 202-222, March.
    18. Cameron, David R., 1978. "The Expansion of the Public Economy: A Comparative Analysis," American Political Science Review, Cambridge University Press, vol. 72(4), pages 1243-1261, December.
    19. John Anderson & Hendrik van den Berg, 1998. "Fiscal Decentralization and Government Size: An International Test for Leviathan Accounting for Unmeasured Economic Activity," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 5(2), pages 171-186, May.
    20. Hans‐Werner Sinn, 2004. "The New Systems Competition," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 5(1), pages 23-38, February.
    21. Oates, Wallace E, 1989. "Searching for Leviathan: Reply," American Economic Review, American Economic Association, vol. 79(3), pages 578-583, June.
    22. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Graeme Roy, 2006. "Grants Versus Tax Sharing: the Extent of Central Government Control," ERSA conference papers ersa06p74, European Regional Science Association.
    2. John Ashworth & Emma Galli & Fabio Padovano, 2013. "Decentralization as a constraint to Leviathan: a panel cointegration analysis," Public Choice, Springer, vol. 156(3), pages 491-516, September.
    3. Daniel Gama e Colombo & Jorge Martinez-Vazquez, 2018. "Fiscal Decentralization and Public R&D Policy: A Country Panel Analysis," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1820, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    4. Niklas Potrafke, 2006. "Political Effects on the Allocation of Public Expenditures: Empirical Evidence from OECD Countries," Discussion Papers of DIW Berlin 653, DIW Berlin, German Institute for Economic Research.
    5. Guccio, Calogero & Pignataro, Giacomo & Rizzo, Ilde, 2014. "Do local governments do it better? Analysis of time performance in the execution of public works," European Journal of Political Economy, Elsevier, vol. 34(C), pages 237-252.
    6. Heijdra, Ben J. & Ligthart, Jenny E., 2010. "The Transitional Dynamics Of Fiscal Policy In Small Open Economies," Macroeconomic Dynamics, Cambridge University Press, vol. 14(1), pages 1-28, February.
    7. Diego Pinilla & Juan de Dios Jiménez & Roberto Montero, 2013. "Dimensión del Estado y descentralización fiscal. Elementos para el debate desde la experiencia reciente de América Latina," Revista de Economía del Rosario, Universidad del Rosario, June.
    8. repec:dau:papers:123456789/179 is not listed on IDEAS
    9. Aurélie Cassette & Sonia Paty, 2010. "Fiscal decentralization and the size of government: a European country empirical analysis," Public Choice, Springer, vol. 143(1), pages 173-189, April.
    10. Pierre Salmon, 2013. "Horizontal competition in multilevel governmental settings," Working Papers hal-00830876, HAL.
    11. David Cantarero Prieto & Marta Pascual Saez, "undated". "Decentralisation and health care outcomes: An empirical analysis within the European Union," Studies on the Spanish Economy 220, FEDEA.
    12. Jiménez-Rubio, Dolores, 2011. "The impact of fiscal decentralization on infant mortality rates: Evidence from OECD countries," Social Science & Medicine, Elsevier, vol. 73(9), pages 1401-1407.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jon H. Fiva, 2006. "New Evidence on the Effect of Fiscal Decentralization on the Size and Composition of Government Spending," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 62(2), pages 250-280, June.
    2. Qiao, Mo & Ding, Siying & Liu, Yongzheng, 2019. "Fiscal decentralization and government size: The role of democracy," European Journal of Political Economy, Elsevier, vol. 59(C), pages 316-330.
    3. John Ashworth & Emma Galli & Fabio Padovano, 2013. "Decentralization as a constraint to Leviathan: a panel cointegration analysis," Public Choice, Springer, vol. 156(3), pages 491-516, September.
    4. Niklas Potrafke, 2006. "Political Effects on the Allocation of Public Expenditures: Empirical Evidence from OECD Countries," Discussion Papers of DIW Berlin 653, DIW Berlin, German Institute for Economic Research.
    5. Paolo Liberati & Agnese Sacchi, 2013. "Tax decentralization and local government size," Public Choice, Springer, vol. 157(1), pages 183-205, October.
    6. Jia, Junxue & Guo, Qingwang & Zhang, Jing, 2014. "Fiscal decentralization and local expenditure policy in China," China Economic Review, Elsevier, vol. 28(C), pages 107-122.
    7. Diego Pinilla & Juan de Dios Jiménez & Roberto Montero, 2013. "Dimensión del Estado y descentralización fiscal. Elementos para el debate desde la experiencia reciente de América Latina," Revista de Economía del Rosario, Universidad del Rosario, June.
    8. Zhu, Z. & Krug, B., 2005. "Is China a Leviathan?," ERIM Report Series Research in Management ERS-2004-103-ORG, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    9. Antonio Sciala' & Paolo Liberati, 2008. "The impact of economic openness on the vertical structure of the public sector," "Marco Fanno" Working Papers 0085, Dipartimento di Scienze Economiche "Marco Fanno".
    10. Alice Y. Ouyang & Rui Li, 2021. "Fiscal decentralization and the default risk of Chinese local government debts," Contemporary Economic Policy, Western Economic Association International, vol. 39(3), pages 641-667, July.
    11. Silvia GOLEM & Lena MALEŠEVIC PEROVIC, 2014. "An Empirical Analysis of the Relationship between Fiscal Decentralization and the Size of Government," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 64(1), pages 30-58, February.
    12. Samuel Kwabena Obeng, 2021. "Fiscal decentralization, democracy and government size: Disentangling the complexities," Journal of International Development, John Wiley & Sons, Ltd., vol. 33(6), pages 975-1004, August.
    13. Lars Feld, 2014. "James Buchanan’s theory of federalism: from fiscal equity to the ideal political order," Constitutional Political Economy, Springer, vol. 25(3), pages 231-252, September.
    14. David Cantarero & Patricio Perez, 2012. "Decentralization and regional government size in Spain," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 11(3), pages 211-237, December.
    15. Qurat ul Ain & Tahir Yousaf & Yan Jie & Yasmeen Akhtar, 2020. "The Impact of Devolution on Government Size and Provision of Social Services: Evi¬dence from Pakistan," Hacienda Pública Española / Review of Public Economics, IEF, vol. 234(3), pages 105-135, September.
    16. Jorge Martinez-Vazquez & Santiago Lago-Peñas & Agnese Sacchi, 2017. "The Impact Of Fiscal Decentralization: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 31(4), pages 1095-1129, September.
    17. Reingewertz, Yaniv, 2014. "Fiscal Decentralization - a Survey of the Empirical Literature," MPRA Paper 59889, University Library of Munich, Germany.
    18. Choudhury, Atrayee & Sahu, Sohini, 2022. "Revisiting the nexus between fiscal decentralization and government size - The role of ethnic fragmentation," European Journal of Political Economy, Elsevier, vol. 75(C).
    19. Makreshanska, Suzana & Petrevski, Goran, 2016. "Fiscal decentralization and government size across Europe," MPRA Paper 82472, University Library of Munich, Germany.
    20. Rodden, Jonathan, 2003. "Reviving Leviathan: Fiscal Federalism and the Growth of Government," International Organization, Cambridge University Press, vol. 57(4), pages 695-729, October.

    More about this item

    Keywords

    fiscal federalism; sub-central fiscal autonomy; government expenditures; size of government;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_1615. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.