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Fiscal Decentralisation and Economic Growth: Role of Democratic Institutions

Author

Listed:
  • Nasir Iqbal

    (Pakistan Institute of Development Economics, Islamabad)

  • Musleh Ud Din

    (Pakistan Institute of Development Economics, Islamabad)

  • Ejaz Ghani

    (Pakistan Institute of Development Economics, Islamabad)

Abstract

This study attempts to analyse the impact of fiscal decentralisation on economic growth. It also examines the complementarity between fiscal decentralisation and democratic institutions in promoting growth. The modelling framework is the endogenous growth model augmented with measures of fiscal decentralisation through democratic institutions. To capture the multidimensionality, three different measures of fiscal decentralisation are used. The overall analysis shows that revenue decentralisation promotes economic growth while expenditure decentralisation retards economic growth. Composite decentralisation positively influences economic growth implying that simultaneous decentralisation of revenue and expenditure reinforce each other to promote economic growth. Analysis also shows that democratic institutions play a significant role in realising the benefits of fiscal decentralisation. Various policy implications emerge from this study.

Suggested Citation

  • Nasir Iqbal & Musleh Ud Din & Ejaz Ghani, 2012. "Fiscal Decentralisation and Economic Growth: Role of Democratic Institutions," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 51(3), pages 173-195.
  • Handle: RePEc:pid:journl:v:51:y:2012:i:3:p:173-195
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    References listed on IDEAS

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    12. 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.
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    Cited by:

    1. Syed Shujaat AHMED & Asif JAVED, 2017. "The Effect of Public Sector Development Expenditures and Investment on Economic Growth: Evidence from Pakistan," Journal of Economics and Political Economy, KSP Journals, vol. 4(2), pages 203-214, June.
    2. Muhammad Shahid & Amjad Ali, 2015. "The Impact of Decentralized Economic Affairs Expenditures on Economic Growth: A Time Series Analysis of Pakistan," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 4(3), pages 136-148, September.
    3. repec:pid:journl:v:55:y:2016:i:4:p:743-760 is not listed on IDEAS
    4. repec:pid:journl:v:55:y:2016:i:4:p:781-802 is not listed on IDEAS

    More about this item

    Keywords

    Fiscal Decentralisation; Democracy; Economic Growth; Pakistan;

    JEL classification:

    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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