Reviving Leviathan: Fiscal Federalism and the Growth of Government
This article revisits the influential “Leviathan” hypothesis, which posits that tax competition limits the growth of government spending in decentralized countries. I use panel data to examine the effect of fiscal decentralization over time within countries, attempting to distinguish between decentralization that is funded by intergovernmental transfers and local taxation. First, I explore the logic whereby decentralization should restrict government spending if state and local governments have wide-ranging authority to set the tax base and rate, especially on mobile assets. In countries where this is most clearly the case, decentralization is associated with smaller government. Second, consistent with theoretical arguments drawn from welfare economics and positive political economy, I show that governments grow faster as they fund a greater portion of public expenditures through intergovernmental transfers.
Volume (Year): 57 (2003)
Issue (Month): 04 (September)
|Contact details of provider:|| Postal: Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK|
Web page: http://journals.cambridge.org/jid_INO
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Persson, Torsten & Tabellini, Guido, 1994. "Does centralization increase the size of government?," European Economic Review, Elsevier, vol. 38(3-4), pages 765-773, April.
- Philip Grossman, 1989.
"Fiscal decentralization and government size: An extension,"
Springer, vol. 62(1), pages 63-69, July.
- P.J. Grossman, 1988. "Fiscal Decentralization and Government Size: An extension," Economics Discussion / Working Papers 88-16, The University of Western Australia, Department of Economics.
- Philip J. Grossman, 1989. "Fiscal Decentralization and Government Size: An Extension," Monash Economics Working Papers archive-05, Monash University, Department of Economics.
- Barry Eichengreen & Jürgen Hagen, 1996. "Fiscal restrictions and monetary union: Rationales, repercussions, reforms," Empirica, Springer, vol. 23(1), pages 3-23, February.
- Ernesto Stein, 1999.
"Fiscal Decentralization and Government Size in Latin America,"
Journal of Applied Economics,
Universidad del CEMA, vol. 0, pages 357-391, November.
- Ernesto H. Stein, 1998. "Fiscal Decentralization and Government Size in Latin America," Research Department Publications 4112, Inter-American Development Bank, Research Department.
- Ernesto H. Stein & Jorge M. Streb, 1998. "Fiscal Decentralization and Government Size in Latin America," IDB Publications (Working Papers) 6436, Inter-American Development Bank.
- Zodrow, George R. & Mieszkowski, Peter, 1986. "Pigou, Tiebout, property taxation, and the underprovision of local public goods," Journal of Urban Economics, Elsevier, vol. 19(3), pages 356-370, May.
- Wallace E. Oates, 1991. "Studies In Fiscal Federalism," Books, Edward Elgar Publishing, number 342, April.
- Dani Rodrik, 1996.
"Why Do More Open Economies Have Bigger Governments?,"
NBER Working Papers
5537, National Bureau of Economic Research, Inc.
- Dani Rodrik, 1998. "Why Do More Open Economies Have Bigger Governments?," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 997-1032, October.
- Rodrik, Dani, 1996. "Why do More Open Economies Have Bigger Governments?," CEPR Discussion Papers 1388, C.E.P.R. Discussion Papers.
- Dilip Mookherjee & Pranab K. Bardhan, 2000. "Capture and Governance at Local and National Levels," American Economic Review, American Economic Association, vol. 90(2), pages 135-139, May.
- Lars-Erik Borge & Jørn Rattsø, 2002. "Spending Growth With Vertical Fiscal Imbalance: Decentralized Government Spending In Norway, 1880-1990," Economics and Politics, Wiley Blackwell, vol. 14(3), pages 351-373, November.
- Panizza, Ugo, 1999. "On the determinants of fiscal centralization: Theory and evidence," Journal of Public Economics, Elsevier, vol. 74(1), pages 97-139, October.
- P.J. Grossman & E. West, 1991.
"Federalism and the Growth of Government Revisited,"
Economics Discussion / Working Papers
91-05, The University of Western Australia, Department of Economics.
- Michael Marlow, 1988. "Fiscal decentralization and government size," Public Choice, Springer, vol. 56(3), pages 259-269, March.
- Bradford, David F & Oates, Wallace E, 1971. "Towards a Predictive Theory of Intergovernmental Grants," American Economic Review, American Economic Association, vol. 61(2), pages 440-48, May.
- Patrick Bolton & Gérard Roland, 1997. "The Breakup of Nations: A Political Economy Analysis," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1057-1090.
- James M. Buchanan & Richard A. Musgrave, 1999. "Public Finance and Public Choice: Two Contrasting Visions of the State," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262024624.
- Marlow, Michael L, 1991. "Privatization and Government Size," Public Choice, Springer, vol. 68(1-3), pages 273-76, January.
- Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
- Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-27, October.
- Winer, Stanley L, 1983. "Some Evidence on the Effect of the Separation of Spending and Taxing Decisions," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 126-40, February.
When requesting a correction, please mention this item's handle: RePEc:cup:intorg:v:57:y:2003:i:04:p:695-729_57. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Keith Waters)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.