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Does Fiscal Decentralization Dampen All Ethnic Conflicts? The heterogeneous Impact of Fiscal Decentralization on Local Minorities and Local Majorities

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  • Tranchant, Jean-Pierre

Abstract

Fiscal decentralization is widely proposed as an efficient means to accommodate ethnic violence. Yet while most of the econometric cross-country studies supports this view, case studies offer mixed results. In this paper, it is argued that this is partly due to the fact that fiscal decentralization exerts a heterogeneous impact across ethnic local majorities and minorities, both types of groups being regionally concentrated. The main argument in favour of fiscal decentralization is that by politically and fiscally empowering the local communities, these are enabled to allocate public spending in a way that is closer to their preferences. This paper hypothesises that such an empowerment mechanism, while relevant for local majorities, is likely to perform poorly for local minorities as they are not in a dominant position locally. This might feed ethnic violence as local minorities mobilize to obtain administrative regions in which they would control the decentralized policy. Similarly, fiscal decentralization could fuel communal violence as politically marginalized ethnic minorities clash against powerful local majorities. The article also hypothesises that the concern expressed by sceptics that fiscal decentralization undermines national cohesion and encourages secessionism is more acute for local majorities than for local minorities as the latter are usually too small to credibly envisage independence. Such hypotheses are discussed in the paper and then empirically tested on a panel dataset of ethnic local majorities and minorities across the world on the period 1985-2001. The main results are that i) fiscal decentralization does not encourage secessionism but on the contrary dampen rebellion of local majorities but, ii) fiscal decentralization fuels rebellion of local minorities, iii) fiscal decentralization reduces communal violence for both local majorities and minorities. As a result of its heterogeneous impact, the article calls into question the relevance of relying on fiscal decentralization to manage ethnic violence.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 22776.

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Date of creation: 2010
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Handle: RePEc:pra:mprapa:22776

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Keywords: Ethnic conflict; fiscal decentralization; panel data;

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  1. Alberto Alesina & Arnaud Devleeschauwer & William Easterly & Sergio Kurlat & Romain Wacziarg, 2002. "Fractionalization," Harvard Institute of Economic Research Working Papers 1959, Harvard - Institute of Economic Research.
    • Alesina, Alberto & Devleeschauwer, Arnaud & Wacziarg, Romain & Kurlat, Sergio & Easterly, William, 2003. "Fractionalization," Scholarly Articles 4553003, Harvard University Department of Economics.
    • Alberto Alesina & Arnaud Devleeschauwer & William Easterly & Sergio Kurlat & Romain Wacziarg, 2003. "Fractionalization," NBER Working Papers 9411, National Bureau of Economic Research, Inc.
    • Wacziarg, Romain & Alesina, Alberto & Devleeschauwer, Arnaud & Easterly, William & Kurlat, Sergio, 2002. "Fractionalization," Research Papers 1744, Stanford University, Graduate School of Business.
  2. Pranab Bardhan, 2002. "Decentralization of Governance and Development," Journal of Economic Perspectives, American Economic Association, vol. 16(4), pages 185-205, Fall.
  3. Kjetil Bjorvatn & Alexander W. Cappelen, 2003. "Decentralization and the Fate of Minorities," CESifo Working Paper Series 1032, CESifo Group Munich.
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Cited by:
  1. Emilie Caldeira, 2012. "Does the System of Allocation of Intergovernmental Transfers in Senegal Eliminate Politically Motivated Targeting?," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 21(2), pages 167-191, March.
  2. Markwardt, Gunther & Farzanegan, Mohammad & Leßmann, Christian, 2013. "Natural-resource rents and internal conflicts - Can decentralization lift the curse?," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79940, Verein für Socialpolitik / German Economic Association.

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