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Fiscal Decentralization and Regional Disparity: A Panel Data Approach for OECD Countries

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  • Christian Leßmann

Abstract

The advantages and disadvantages of public sector decentralization are widely discussedin economics and political science. While some authors argue that decentralization leads to an optimal provision of public services and a promotion of economic growth, others emphasize the dangers of competition associated with decentralization between subnational governments especially for redistributive reasons. These authors argue that poorer regions could not compete for mobile factors with the richer ones and, therefore, poor regions would get poorer and rich regions richer. This paper studies empirically the impact of fiscal decentralization on regional disparities using panel data for 17 OECD countries from 1980 to 2001. As the measurement of decentralization and regional disparity is one of the main difficulties of this research, both are discussed extensively and different measurement concepts are elaborated. The findings of this study are that a high degree of decentralization is connected with low regional disparities. Hence, poor regions have no disadvantages from decentralization, quite the contrary.

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Bibliographic Info

Paper provided by Ifo Institute for Economic Research at the University of Munich in its series Ifo Working Paper Series with number Ifo Working Papers No. 25.

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Date of creation: 2006
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Handle: RePEc:ces:ifowps:_25

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Cited by:
  1. Akramov, Kamiljon T. & Asante, Felix Ankomah, 2009. "Decentralization and local public services in Ghana: Do geography and ethnic diversity matter?," IFPRI discussion papers, International Food Policy Research Institute (IFPRI) 872, International Food Policy Research Institute (IFPRI).
  2. Antonis Adam & Manthos D. Delis & Pantelis Kammas, 2008. "Fiscal Decentralization and Public Sector Efficiency: Evidence from OECD Countries," CESifo Working Paper Series 2364, CESifo Group Munich.
  3. Lessmann, Christian, 2009. "Fiscal decentralization and regional disparity: Evidence from cross-section and panel data," Dresden Discussion Paper Series in Economics, Dresden University of Technology, Faculty of Business and Economics, Department of Economics 08/09, Dresden University of Technology, Faculty of Business and Economics, Department of Economics.
  4. Kessler, Anke & Lessmann, Christian, 2010. "Interregional Redistribution and Regional Disparities: How Equalization Does (Not) Work," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8133, C.E.P.R. Discussion Papers.

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