What Drives Fiscal Decentralisation?

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What Drives Fiscal Decentralisation?

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Philip Bodman () (MRG - School of Economics, The University of Queensland)
Kathryn Ford (MRG - School of Economics, The University of Queensland)
Tom Gole (MRG - School of Economics, The University of Queensland)
Andrew Hodge () (MRG - School of Economics, The University of Queensland)

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Philip Bodman

Abstract

This paper investigates the determinants of fiscal decentralisation, focusing in particular on the impact of the level of income on the level of fiscal decentralisation. Various measures of fiscal decentralisation, several of them novel in this context, are employed in a cross-country econometric model to test established and more recent hypotheses. Paying careful attention to variable measurement, model specification and sample coverage, the results suggest that there are significant relationships between a range of factors, including income, geographical size, population density, population diversity, military expenditure, the structure of the public sector and openness to trade, and fiscal decentralisation. However, these relationships may be more complicated than previously reported. For the entire sample and for the OECD subsample a positive relationship between income and decentralisation is found, which corroborates the results found in earlier studies. However, for the middle and lower income nations, higher income is found to be associated with less decentralisation.

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Paper provided by School of Economics, University of Queensland, Australia in its series MRG Discussion Paper Series with number 3009.

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Handle: RePEc:qld:uqmrg6:30

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Zhang, Tao & Zou, Heng-fu, 2001. "The growth impact of intersectoral and intergovernmental allocation of public expenditure: With applications to China and India," China Economic Review, Elsevier, vol. 12(1), pages 58-81. [Downloadable!] (restricted)
Alesina, Alberto & Tabellini, Guido, 1990. "A Positive Theory of Fiscal Deficits and Government Debt," Review of Economic Studies, Blackwell Publishing, vol. 57(3), pages 403-14, July. [Downloadable!] (restricted)
Ulrich Thießen, 2003. "Fiscal Decentralisation and Economic Growth in High-Income OECD Countries," Fiscal Studies, Institute for Fiscal Studies, vol. 24(3), pages 237-274, September.

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