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Does Fiscal Decentralisation Foster Regional Investment in Productive Infrastructure?

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  • Andreas Kappeler
  • Albert Solé-Ollé
  • Andreas Stephan
  • Timo Välilä

Abstract

The aim of this paper is to analyze the effect of revenue decentralization on the provision of infrastructure at the sub-national level. We estimate the effects of revenue decentralization and earmarked grant financing on the level of sub-national infrastructure investment in 20 European countries over the period 1990-2009. The results are interpreted in light of the predictions of the theory on fiscal federalism. We find that it is sub-national infrastructure investment that increases after revenue decentralization and not investment in redistribution. However, the effect of revenue decentralization is lower the higher the use of earmarked grants to fund infrastructure investment.

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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1204.

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Length: 29 p.
Date of creation: 2012
Date of revision:
Handle: RePEc:diw:diwwpp:dp1204

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Keywords: regional investment; fiscal federalism; dynamic panel data;

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Cited by:
  1. Roy Bahl & Richard M. Bird, 2014. "Decentralization and Infrastructure: Principles and Practice," International Center for Public Policy Working Paper Series, at AYSPS, GSU, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University paper1408, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  2. Jonas Frank & Jorge Martinez-Vazquez, 2014. "Decentralization And Infrastructure: From Gaps To Solutions," International Center for Public Policy Working Paper Series, at AYSPS, GSU, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University paper1405, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.

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