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On the link between fiscal decentralization and public debt in OECD countries

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  • Thushyanthan Baskaran

Abstract

Excessive borrowing by subnational governments is considered to be one of the perils of fiscal decentralization. On the other hand, fiscal decentralization might ensure the scal stability of the public sector by constraining Leviathan governments. Since the impact of decentralized government on fiscal outcomes is therefore ambiguous from a theoretical perspective, we explore this question empirically with a panel of 17 OECD countries over the 1975-2001 period. Our findings suggest that expenditure decentralization signicantly reduces public indebtedness, whereas tax decentralization and vertical fiscal imbalances are insignicant.
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  • Thushyanthan Baskaran, 2010. "On the link between fiscal decentralization and public debt in OECD countries," Public Choice, Springer, vol. 145(3), pages 351-378, December.
    • Handle: RePEc:kap:pubcho:v:145:y:2010:i:3:p:351-378
    DOI: 10.1007/s11127-009-9570-4
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    More about this item

    Keywords

    Fiscal decentralization; Public debt; Soft budget constraints; H71; H77; H30;
    All these keywords.

    JEL classification:

    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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