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Tax Decentralization and Public Deficits in OECD Countries

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  • Thushyanthan Baskaran

Abstract

This article explores the effect of sub-national tax autonomy and sub-national control over shared taxes on primary deficits with panel data for 23 OECD countries over the 1975--2000 period. The results suggest that sub-national tax autonomy has a U-shaped effect on primary deficits. We find that the "average" country in the sample could increase the fiscal stability of its public sector by reducing sub-national tax autonomy. There is also some indication that sub-national control over shared taxes increases fiscal stability, but we obtain this result only if Belgium and Spain are included in the sample. Copyright 2012, Oxford University Press.

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  • Thushyanthan Baskaran, 2012. "Tax Decentralization and Public Deficits in OECD Countries," Publius: The Journal of Federalism, CSF Associates Inc., vol. 42(4), pages 688-707, October.
    • Handle: RePEc:oup:publus:v:42:y:2012:i:4:p:688-707
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    2. Grażyna Bukowska & Joanna Siwińska-Gorzelak, 2016. "Can fiscal decentralisation curb fiscal imbalances?," Working Papers 2016-35, Faculty of Economic Sciences, University of Warsaw.
    3. Benjamin Larin & Bernd Süssmuth, 2014. "Fiscal Autonomy and Fiscal Sustainability: Subnational Taxation and Public Indebtedness in Contemporary Spain," CESifo Working Paper Series 4726, CESifo.
    4. Santiago Lago-Peñas & Agnese Sacchi & Pablo Simon-Cosano, 2014. "Who honor the rules of federalism? Party system nationalization and fiscal performance," Working Papers. Collection A: Public economics, governance and decentralization 1409, Universidade de Vigo, GEN - Governance and Economics research Network.
    5. Lars P. Feld & Ekkehard A. Köhler & Leonardo Palhuca & Christoph A. Schaltegger, 2021. "Federalism and Foreign Direct Investment - An Empirical Analysis," CESifo Working Paper Series 9120, CESifo.
    6. Oto-Peralías, Daniel & Romero-Ávila, Diego & Usabiaga, Carlos, 2013. "Does fiscal decentralization mitigate the adverse effects of corruption on public deficits?," European Journal of Political Economy, Elsevier, vol. 32(C), pages 205-231.
    7. Jochimsen Beate, 2018. "Federalism in Germany, Italy, and the European Union: History, Characteristics, and Perspectives," Journal for Markets and Ethics, Sciendo, vol. 6(1), pages 145-154, June.
    8. Amílcar Marcelo Varela Enríquez & Gustavo Adrián Salazar Espinoza, "undated". "Tax Decentralization And Economic Growth In Latin America: Evidence Of Panel Data: 2000-2018," Review of Socio - Economic Perspectives 202062, Reviewsep.
    9. Presbitero, Andrea F. & Sacchi, Agnese & Zazzaro, Alberto, 2014. "Property tax and fiscal discipline in OECD countries," Economics Letters, Elsevier, vol. 124(3), pages 428-433.
    10. Potrafke, Niklas, 2017. "Partisan politics: The empirical evidence from OECD panel studies," Journal of Comparative Economics, Elsevier, vol. 45(4), pages 712-750.
    11. Paul Van Rompuy, 2016. "Sub-national Tax Autonomy and Deficits: Empirical Results for 27 OECD Countries," Regional Studies, Taylor & Francis Journals, vol. 50(7), pages 1248-1259, July.
    12. Feld, Lars P. & Köhler, Ekkehard A. & Palhuca, Leonardo & Schaltegger, Christoph A., 2022. "Fiscal federalism and foreign direct investment: An empirical analysis," Freiburg Discussion Papers on Constitutional Economics 22/4, Walter Eucken Institut e.V..
    13. Nakatani, Ryota, 2023. "Revenue Decentralization and the Probability of a Fiscal Crisis: Is There a Tipping Point for Adverse Effects?," MPRA Paper 119032, University Library of Munich, Germany.
    14. Lenka Maličká, 2017. "The Role of Immovable Property Taxes in the EU Countries - Taxes on Land, Buildings and Other Structure in Sub-national Tax Revenues under the Conditions of Tax Decentralization," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 65(4), pages 1383-1392.
    15. Makreshanska, Suzana & Petrevski, Goran, 2015. "Fiscal Decentralization and Inflation in Central and Eastern Europe," MPRA Paper 77596, University Library of Munich, Germany, revised 16 Mar 2017.

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    JEL classification:

    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing

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