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Fiscal Decentralization, Governance, And Economic Performance: A Reconsideration

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  • DANIEL TREISMAN

Abstract

In countries with tax-sharing systems, assigning local governments a large share of locally generated revenues is often thought to promote economic development. The more local officials benefit from local economic activity, the more supportive of business and less corrupt they should be, resulting in higher output. Some attribute China's rapid growth to its high local retention rates and Russia's 1990s stagnation to the central clawback of local revenues. I show that such arguments ignore an important actor in the game - the central government. If increasing the local tax share improves incentives for local authorities, it worsens them for central officials. The net effect on output is indeterminate. Copyright 2006 Blackwell Publishing Ltd.

Suggested Citation

  • Daniel Treisman, 2006. "Fiscal Decentralization, Governance, And Economic Performance: A Reconsideration," Economics and Politics, Wiley Blackwell, vol. 18(2), pages 219-235, July.
  • Handle: RePEc:bla:ecopol:v:18:y:2006:i:2:p:219-235
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    1. Wildasin, David E., 1997. "Externalities and bailouts : hard and soft budget constraints in intergovernmental fiscal relations," Policy Research Working Paper Series 1843, The World Bank.
    2. Pranab Bardhan & Dilip Mookherjee, 2000. "Corruption and Decentralization of Infrastructure Delivery in Developing Countries," Boston University - Institute for Economic Development 104, Boston University, Institute for Economic Development.
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    Cited by:

    1. Goel, Rajeev K. & Mazhar, Ummad & Nelson, Michael A. & Ram, Rati, 2017. "Different forms of decentralization and their impact on government performance: Micro-level evidence from 113 countries," Economic Modelling, Elsevier, vol. 62(C), pages 171-183.
    2. Fan, C. Simon & Lin, Chen & Treisman, Daniel, 2009. "Political decentralization and corruption: Evidence from around the world," Journal of Public Economics, Elsevier, vol. 93(1-2), pages 14-34, February.
    3. repec:spo:wpecon:info:hdl:2441/10059 is not listed on IDEAS
    4. Iain Begg & Henrik Enderlein & Jacques Le Cacheux & Mojmir Mrak, 2008. "Financing of the European Union Budget," Sciences Po publications info:hdl:2441/10059, Sciences Po.
    5. repec:cup:apsrev:v:108:y:2014:i:01:p:144-168_00 is not listed on IDEAS
    6. David Bartolini, 2015. "Municipal fragmentation and economic performance in OECD TL2 regions," ERSA conference papers ersa15p607, European Regional Science Association.
    7. Asatryan, Zareh & Feld, Lars P., 2015. "Revisiting the link between growth and federalism: A Bayesian model averaging approach," Journal of Comparative Economics, Elsevier, vol. 43(3), pages 772-781.
    8. Andreas Kyriacou & Oriol Roca sagalés, 2009. "Fiscal descentralization and the quality of government: evidence from panel data," Hacienda Pública Española, IEF, vol. 189(2), pages 131-155, June.
    9. Lisa Grazzini & Alessandro Petretto, 2012. "Voting on devolution in a federal country with a bicameral national system," Economics of Governance, Springer, vol. 13(1), pages 51-72, March.
    10. Bodman, Philip & Campbell, Harry & Le, Thanh, 2012. "Public investment, taxation, and long-run output in economies with multi-level governments," Economic Modelling, Elsevier, vol. 29(5), pages 1603-1611.
    11. Bordignon, Massimo & Colombo, Luca & Galmarini, Umberto, 2008. "Fiscal federalism and lobbying," Journal of Public Economics, Elsevier, vol. 92(12), pages 2288-2301, December.
    12. Jorge Martinez-Vazquez & Santiago Lago-Peñas & Agnese Sacchi, 2017. "The Impact Of Fiscal Decentralization: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 31(4), pages 1095-1129, September.
    13. repec:gig:joupla:v:6:y:2014:i:1:p:3-44 is not listed on IDEAS
    14. Frederico Cavazzini & Pedro Picaluga Nevado, 2013. "Fighting corruption with strategy," OBEGEF Working Papers 016, OBEGEF - Observatório de Economia e Gestão de Fraude;OBEGEF Working Papers on Fraud and Corruption.
    15. Malesky, Edmund J. & Nguyen, Cuong Viet & Tran, Anh, 2014. "The Impact of Recentralization on Public Services: A Difference-in-Differences Analysis of the Abolition of Elected Councils in Vietnam," American Political Science Review, Cambridge University Press, vol. 108(01), pages 144-168, February.

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