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New Evidence on Fiscal Decentralization and the Size of Government

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  • 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.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2005/wp-cesifo-2005-12/cesifo1_wp1615.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1615.

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Date of creation: 2005
Date of revision:
Handle: RePEc:ces:ceswps:_1615

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Related research

Keywords: fiscal federalism; sub-central fiscal autonomy; government expenditures; size of government;

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References

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  1. Jing Jin & Heng-fu Zou, 2000. "How does fiscal decentralization affect aggregate, national, and subnational government size?," CEMA Working Papers 72, China Economics and Management Academy, Central University of Finance and Economics.
  2. Oates, Wallace E, 1985. "Searching for Leviathan: An Empirical Study," American Economic Review, American Economic Association, vol. 75(4), pages 748-57, September.
  3. Ebel, Robert D. & Yilmaz, Serdar, 2002. "On the measurement and impact of fiscal decentralization," Policy Research Working Paper Series 2809, The World Bank.
  4. Rodden, Jonathan, 2003. "Reviving Leviathan: Fiscal Federalism and the Growth of Government," International Organization, Cambridge University Press, vol. 57(04), pages 695-729, September.
  5. Philip Grossman, 1989. "Fiscal decentralization and government size: An extension," Public Choice, Springer, vol. 62(1), pages 63-69, July.
  6. Rodrik, Dani, 1996. "Why do More Open Economies Have Bigger Governments?," CEPR Discussion Papers 1388, C.E.P.R. Discussion Papers.
  7. Hans-Werner Sinn, 2004. "The New Systems Competition," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 5(1), pages 23-38, 02.
  8. 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.
  9. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
  10. 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.
  11. 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.
  12. Lars P. Feld & Gebhard Kirchgässner & Christoph A. Schaltegger, 2003. "Decentralized Taxation and the Size of Government: Evidence from Swiss State and Local Governments," CESifo Working Paper Series 1087, CESifo Group Munich.
  13. Fisman, Raymond & Gatti, Roberta, 2000. "Decentralization and corruption - evidence across countries," Policy Research Working Paper Series 2290, The World Bank.
  14. Brennan,Geoffrey & Buchanan,James M., 2006. "The Power to Tax," Cambridge Books, Cambridge University Press, number 9780521027922, November.
  15. 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, vol. 5(2), pages 171-186, May.
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Cited by:
  1. Koessler, Frédéric & Forges, Françoise, 2008. "Long persuasion games," Economics Papers from University Paris Dauphine 123456789/179, Paris Dauphine University.
  2. David Cantarero Prieto & Marta Pascual Saez, . "Decentralisation and health care outcomes: An empirical analysis within the European Union," Studies on the Spanish Economy 220, FEDEA.
  3. Pierre Salmon, 2013. "Horizontal competition in multilevel governmental settings," Working Papers hal-00830876, HAL.
  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. 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.
  6. Graeme Roy, 2006. "Grants Versus Tax Sharing: the Extent of Central Government Control," ERSA conference papers ersa06p74, European Regional Science Association.
  7. 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.

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