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Direct and indirect effects of fiscal decentralisation on economic growth

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  • Stojcic, Nebojsa
  • Suman Tolic, Meri

Abstract

This paper examines the direct and indirect effects of decentralization on economic growth that take place through transmission channels such as government efficiency, control of corruption, public sector size and the quality of living. A dynamic nature of growth, potential endogeneity and the distinction between short and long run effects are taken into account. Our findings support proactive government approach, including fiscal policy measures to stimulate demand, prevent decline of production and employment and rebuild trust in institutions. They question the current prevalent thinking about the beneficial effects of the reduction of public expenditure on economic growth.

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  • Stojcic, Nebojsa & Suman Tolic, Meri, 2018. "Direct and indirect effects of fiscal decentralisation on economic growth," MPRA Paper 108762, University Library of Munich, Germany, revised May 2019.
    • Handle: RePEc:pra:mprapa:108762
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    More about this item

    Keywords

    fiscal decentralization; economic growth; direct and indirect effects; dynamic analysis; European countries;
    All these keywords.

    JEL classification:

    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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