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Income inequality, regional disparities and fiscal decentralization in industrialized countries

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  • Agnese Sacchi

Abstract

In this paper we investigate the interactions among fiscal decentralization, income inequality and regional disparities, using a sample of 23 OECD countries over the period 1971-2000. We first explore the effects of fiscal decentralization on overall income inequality. We then test whether regional economic disparities influence the fiscal decentralization process. We use novel and robust measures of fiscal decentralization based on differences in the degree of both expenditure and tax autonomy. We also conduct several robustness checks to tackle the potential endogeneity and reverse causality issues. Our results highlight the importance both of the nature of fiscal decentralization – expenditure versus taxation – and of the extent to which responsibility and decision powers are really left to subcentral governaments. While a higher degree of tax decentralization is associated with higher overall income inequality within a country, high regional disparities seem to be correlated with lower expenditure decentralization.

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File URL: http://dipeco.uniroma3.it/public/WP%20142%20Sacchi%20Salotti%202011.pdf
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Bibliographic Info

Paper provided by Department of Economics - University Roma Tre in its series Departmental Working Papers of Economics - University 'Roma Tre' with number 0142.

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Date of creation: Dec 2011
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Handle: RePEc:rtr:wpaper:0142

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Keywords: tax decentralization; expenditure decentralization; regional economic disparities;

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Cited by:
  1. Richard M. Bird, 2012. "Fiscal Decentralization in Colombia: A Work (Still) in Progress," 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 paper1223, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.

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