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New Evidence on the Effect of Fiscal Decentralization on the Size and Composition of Government Spending

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  • Jon H. Fiva

Abstract

This paper adds to the literature by utilizing improved data on tax revenue decentralization to reexamine the relationship between fiscal decentralization and the size of government. An econometric analysis using panel data from 18 OECD countries shows that fiscal decentralization matters for both the size and the composition of government spending. Tax revenue decentralization is associated with a smaller public sector, while expenditure decentralization is associated with a larger public sector. The results indicate that the former effect is driven by a reduction in social security transfers, while the latter effect is driven by increased government consumption.

Suggested Citation

  • Jon H. Fiva, 2006. "New Evidence on the Effect of Fiscal Decentralization on the Size and Composition of Government Spending," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 62(2), pages 250-280, June.
    • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200606)62:2_250:neoteo_2.0.tx_2-2
    DOI: 10.1628/001522106X120659
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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