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

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Listed author(s):
  • 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.

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File URL: http://www.ingentaconnect.com/content/mohr/fa/2006/00000062/00000002/art00006
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Article provided by Mohr Siebeck, Tübingen in its journal FinanzArchiv.

Volume (Year): 62 (2006)
Issue (Month): 2 (June)
Pages: 250-280

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Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200606)62:2_250:neoteo_2.0.tx_2-2
DOI: 10.1628/001522106X120659
Contact details of provider: Web page: https://www.mohr.de/fa

Order Information: Postal: Mohr Siebeck GmbH & Co. KG, P.O.Box 2040, 72010 Tübingen, Germany
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Keywords: fiscal federalism; subcentral fiscal autonomy; size of government; composition of government;

Find related papers by 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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  1. Oates, Wallace E, 1985. "Searching for Leviathan: An Empirical Study," American Economic Review, American Economic Association, vol. 75(4), pages 748-757, September.
  2. Brennan,Geoffrey & Buchanan,James M., 2006. "The Power to Tax," Cambridge Books, Cambridge University Press, number 9780521027922, February.
  3. Lars P. Feld & Gebhard Kirchgaessner & Christoph A. Schaltegger, 2010. "Decentralized Taxation and the Size of Government: Evidence from Swiss State and Local Governments," Southern Economic Journal, Southern Economic Association, vol. 77(1), pages 27-48, July.
  4. Fisman, Raymond & Gatti, Roberta, 2002. "Decentralization and corruption: evidence across countries," Journal of Public Economics, Elsevier, vol. 83(3), pages 325-345, March.
  5. Fiva, Jon H. & Rattso, Jorn, 2006. "Welfare competition in Norway: Norms and expenditures," European Journal of Political Economy, Elsevier, vol. 22(1), pages 202-222, March.
  6. Faguet, Jean-Paul, 2004. "Does decentralization increase government responsiveness to local needs?: Evidence from Bolivia," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 867-893, March.
  7. Keen, Michael & Marchand, Maurice, 1997. "Fiscal competition and the pattern of public spending," Journal of Public Economics, Elsevier, vol. 66(1), pages 33-53, October.
  8. Philip Grossman, 1989. "Fiscal decentralization and government size: An extension," Public Choice, Springer, vol. 62(1), pages 63-69, July.
  9. Ebel, Robert D. & Yilmaz, Serdar, 2002. "On the measurement and impact of fiscal decentralization," Policy Research Working Paper Series 2809, The World Bank.
  10. Pranab Bardhan, 2002. "Decentralization of Governance and Development," Journal of Economic Perspectives, American Economic Association, vol. 16(4), pages 185-205, Fall.
  11. John Anderson & Hendrik van den Berg, 1998. "Fiscal Decentralization and Government Size: An International Test for Leviathan Accounting for Unmeasured Economic Activity," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 5(2), pages 171-186, May.
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