Fiscal Consolidation And Decentralisation: A Tale Of Two Tiers
AbstractThis paper contributes to the established literature on fiscal consolidations (e.g. Alesina and Perotti, 1995, 1997, Alesina et al, 1998) by investigating the distinct behaviour of central and sub-central tiers of government during general government consolidation attempts. In the light of different degrees of decentralisation across OECD countries, and the different responsibilities devolved to sub-central tiers, we believe that this approach offers an illuminating insight into the analysis of fiscal consolidations and their success. We show that the involvement of the sub-central tiers of government is crucial to achieving cuts in expenditure, particularly in relation to the overall size of the government wage bill. In addition, central governments appear to exert a strong influence on the expenditure of subcentral tiers through their grant allocations, and control of these allocations appears to have a considerable impact upon the overall success of consolidation attempts. Finally we demonstrate that there is a skewness in cuts towards sub-central capital expenditure both when central governments cut grant allocations and when sub-central governments engage in lone consolidation attempts.
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Bibliographic InfoPaper provided by Business School - Economics, University of Glasgow in its series Working Papers with number 2004_2.
Date of creation: Feb 2004
Date of revision:
Other versions of this item:
- Julia Darby & V. Anton Muscatelli & Graeme Roy, 2005. "Fiscal consolidation and decentralisation: a tale of two tiers," Fiscal Studies, Institute for Fiscal Studies, vol. 26(2), pages 169-195, June.
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
- H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
- H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-06-27 (All new papers)
- NEP-GEO-2005-06-27 (Economic Geography)
- NEP-MAC-2005-06-27 (Macroeconomics)
- NEP-URE-2005-06-27 (Urban & Real Estate Economics)
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