The literature on socio economic implications of fiscal decentralization (FD) has recently been expanding, though only very few studies to day have looked at its macroeconomic effects. This paper investigates the relationship between FD and budget deficits. Using various measures of both expenditure and revenue decentralization in a large panel data set, we show that FD is significantly and negatively related to budget deficits. Moreover, among the many possible factors that may reinforce this relationship, country size is the most relevant one. The paper also presents significant evidence that, the larger the country size, both good governance and local accountability accentuates the relationship between FD and budget deficits.
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Paper provided by Turkish Economic Association in its series Working Papers with number
2003/2.
Find related papers by JEL classification: E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
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