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Fiscal decentralization and regional disparities: The importance of good governance

Author

Listed:
  • Kyriacou, Andreas P.
  • Muinelo†Gallo, Leonel
  • Roca†Sagalés, Oriol

Abstract

In this paper we consider how government quality mediates the relationship between fiscal decentralization and regional disparities. Previous work has argued that fiscal decentralization has the potential to reduce income differences across regions but that this potential may not be realized because of governance problems associated with sub†national authorities. Our empirical evidence based on a sample of 24 OECD countries over the period 1984 to 2006 lends a measure of support to this idea. We find that fiscal decentralization promotes regional convergence in high government quality settings but, worryingly, it leads to wider regional disparities in countries with poor governance.

Suggested Citation

Handle: RePEc:eee:paresc:v:94:y:2015:i:1:p:89-108
DOI: 10.1111/pirs.12061
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Keywords

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JEL classification:

  • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
  • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
  • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects

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