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Fiscal Decentralization And Economic Volatility: Evidence From State‐Level Cross‐Section Data Of The Usa

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  • NOBUO AKAI
  • MASAYO HOSOI
  • YUKIHIRO NISHIMURA

Abstract

This paper examines the implications of fiscal decentralization for economic stability. It has been discussed that fiscal decentralization reduces the variance of GDP growth, due to the greater diversification of performance across jurisdictions. We examine this theoretical result using a panel data set of the 50 states of the USA over the period of 1992–1997. We show that the theoretical specification of the production function is supported. We also show a negative significant relationship between fiscal decentralization and economic volatility. The results are robust when we take into account the endogeneity of fiscal decentralization.

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  • Nobuo Akai & Masayo Hosoi & Yukihiro Nishimura, 2009. "Fiscal Decentralization And Economic Volatility: Evidence From State‐Level Cross‐Section Data Of The Usa," The Japanese Economic Review, Japanese Economic Association, vol. 60(2), pages 223-235, June.
    • Handle: RePEc:bla:jecrev:v:60:y:2009:i:2:p:223-235
    DOI: 10.1111/j.1468-5876.2008.00450.x
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    2. Julie Byrne & Denis Conniffe, 2009. "Efficient Estimation of the Non-linear Volatility and Growth Model," Economics Department Working Paper Series n2030809.pdf, Department of Economics, National University of Ireland - Maynooth.
    3. Bo, Shiyu & Deng, Liuchun & Sun, Yufeng & Wang, Boqun, 2021. "Intergovernmental communication under decentralization," Journal of Economic Behavior & Organization, Elsevier, vol. 184(C), pages 606-652.
    4. Xianpu Xu & Shan Li, 2022. "Neighbor-Companion or Neighbor-Beggar? Estimating the Spatial Spillover Effects of Fiscal Decentralization on China’s Carbon Emissions Based on Spatial Econometric Analysis," Sustainability, MDPI, vol. 14(16), pages 1-26, August.
    5. Abd. Ghani, Judhiana & Grewal, Bhajan & Ahmed, Abdullahi D. & Mohamed Nor, Norashidah, 2019. "Fiscal Decentralisation and Economic Growth in Malaysia: A Market Preserving Federalism Perspective," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 53(1), pages 153-170.
    6. Yushkov, Andrey, 2015. "Fiscal decentralization and regional economic growth: Theory, empirics, and the Russian experience," Russian Journal of Economics, Elsevier, vol. 1(4), pages 404-418.

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