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Fiscal Decentralization, Commitment and Regional Inequality: Evidence from State-level Cross-sectional Data for the United States

  • Nobuo Akai

    ()

    (Osaka University)

  • Masayo Hosio

    ()

    (Otemon Gakuin University)

Conventional approaches to fiscal decentralization suggest that decentralization lowers the power of redistribution, but recent theories argue that fiscal decentralization can work as a commitment device. The former effect is argued to cause an increase in inter-county inequality, while the latter suggests a decrease. This article first clarifies the relationship between fiscal decentralization and inter-county inequality by using cross-sectional data for the United States. Our result indicates that the achievement of autonomy by fiscal decentralization in poor (low-income) counties contributes to decreased inter-county inequality, but that this effect is not as large as the dominating adverse effect fiscal decentralization has on rich (highincome) counties.

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Article provided by Journal of Income Distribution in its journal Journal of Income Distribution.

Volume (Year): 18 (2009)
Issue (Month): 1 (March)
Pages: 113-129

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Handle: RePEc:jid:journl:y:2009:v:18:i:1:p:113-129
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  1. Yingyi Qian & Barry R. Weingast, 1997. "Federalism as a Commitment to Preserving Market Incentives," Working Papers 97042, Stanford University, Department of Economics.
  2. Richard Morrill, 2000. "Geographic variation in change in income inequality among US states, 1970-1990," The Annals of Regional Science, Springer, vol. 34(1), pages 109-130.
  3. Shankar, Raja & Shah, Anwar, 2003. "Bridging the Economic Divide Within Countries: A Scorecard on the Performance of Regional Policies in Reducing Regional Income Disparities," World Development, Elsevier, vol. 31(8), pages 1421-1441, August.
  4. Dapeng Hu & Masahisa Fujita, 2001. "Regional disparity in China 1985-1994: The effects of globalization and economic liberalization," The Annals of Regional Science, Springer, vol. 35(1), pages 3-37.
  5. Akai, Nobuo & Sakata, Masayo, 2002. "Fiscal decentralization contributes to economic growth: evidence from state-level cross-section data for the United States," Journal of Urban Economics, Elsevier, vol. 52(1), pages 93-108, July.
  6. Robert G. Lynch, 2003. "Estimates of Income and Income Inequality in the United States and in Each of the Fifty States: 1988-1999," Journal of Regional Science, Wiley Blackwell, vol. 43(3), pages 571-588.
  7. Mark S. McGillivray & Matthew Peter, 1991. "Regional Income Inequality In A Developed Nation: A Cross-Sectional Study Of Australian Sub-State Regions," The Review of Regional Studies, Southern Regional Science Association, vol. 21(2), pages 137-151, Summer.
  8. Oates, Wallace E., 1993. "Fiscal Decentralization and Economic Development," National Tax Journal, National Tax Association, vol. 46(2), pages 237-43, June.
  9. Partridge, Mark D. & Rickman, Dan S. & Levernier, William, 1996. "Trends in U.S. income inequality: Evidence from a panel of states," The Quarterly Review of Economics and Finance, Elsevier, vol. 36(1), pages 17-37.
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