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Fiscal stability during the Great Recession: putting decentralization design to the test

Author

Listed:
  • Santiago Lago-Peñas
  • Jorge Martinez-Vazquez
  • Agnese Sacchi

Abstract

This paper provides an empirical analysis aimed at disentangling the roles played by decentralization level and design as well as the extended decentralized framework provided by subnational borrowing rules and fiscal responsibility laws on a country’s fiscal stability. Using Organisation for Economic Co-operation and Development (OECD) countries’ data from the period 1995–2014, strong regularities are found regarding the effects of decentralization, even during the recent Great Recession. Higher levels of fiscal decentralization have a beneficiary effect on fiscal performance, but the positive impact erodes rapidly with the level of vertical fiscal imbalance. Other fiscal institutions shaping decentralization design, such as borrowing and other fiscal rules, can also contribute to foster fiscal stability.

Suggested Citation

  • Santiago Lago-Peñas & Jorge Martinez-Vazquez & Agnese Sacchi, 2020. "Fiscal stability during the Great Recession: putting decentralization design to the test," Regional Studies, Taylor & Francis Journals, vol. 54(7), pages 919-930, July.
    • Handle: RePEc:taf:regstd:v:54:y:2020:i:7:p:919-930
    DOI: 10.1080/00343404.2019.1637836
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    Cited by:

    1. Zabavnik, Darja & Verbič, Miroslav, 2025. "Revisiting the impact of financial shocks on the fiscal position of euro area countries," Economic Analysis and Policy, Elsevier, vol. 86(C), pages 622-635.
    2. Luis Ayala & Ana Herrero & Jorge Martinez‐Vazquez, 2021. "Welfare benefits in highly decentralized fiscal systems: Evidence on interregional mimicking," Papers in Regional Science, Wiley Blackwell, vol. 100(5), pages 1178-1208, October.
    3. Andrés Rodríguez-Pose & Vinko Muštra, 2022. "The economic returns of decentralisation: Government quality and the role of space," Environment and Planning A, , vol. 54(8), pages 1604-1622, November.
    4. Venturini, Fiorenza, 2020. "The unintended composition effect of the subnational government fiscal rules: The case of Italian municipalities," European Journal of Political Economy, Elsevier, vol. 63(C).
    5. Timothy J. Goodspeed, 2018. "Decentralization and Intra-Country Transfers in the Great Recession: The Case of the EU," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1809, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    6. Pietrovito, Filomena & Pozzolo, Alberto Franco & Resce, Giuliano & Scialà, Antonio, 2023. "Fiscal decentralization and income (re)distribution in OECD countries’ regions," Structural Change and Economic Dynamics, Elsevier, vol. 67(C), pages 69-81.
    7. Luis Ayala & Ana Herrero & Jorge Martinez-Vazquez, 2019. "Welfare Benefits in Highly Decentralized Fiscal Systems: Evidence on Interterritorial Mimicking," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1905, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    8. Gustavo Canavire-Bacarreza & Pablo Evia Salas & Jorge Martinez-Vazquez, 2025. "The Effect of Crises on Fiscal and Political Re-Centralizationâ€," Public Finance Review, , vol. 53(2), pages 169-199, March.
    9. María Cadaval-Sampedro & Ana Herrero-Alcalde & Santiago Lago-Peñas & Jorge Martinez-Vazquez, 2025. "Extreme events and the resilience of decentralised governance," Regional Studies, Taylor & Francis Journals, vol. 59(1), pages 2255627-225, December.
    10. Andrea Filippetti & Sandro Rondinella & Fabrizio Tuzi, 2025. "The Italian Constitutional Court and recentralization along the pendulum of regionalism," Constitutional Political Economy, Springer, vol. 36(1), pages 95-121, March.
    11. Juan Pablo Jiménez & Leonardo Letelier & Ignacio Ruelas & Jaime Bonet-Mor�n, 2021. "Reglas fiscales subnacionales: Revisión empírica, experiencias internacionales y sus desafíos en la nueva institucionalidad fiscal post COVID," Documentos de Trabajo Sobre Economía Regional y Urbana 19502, Banco de la República, Economía Regional.
    12. Timothy J. Goodspeed, 2025. "Coping with extreme events: on solving decentralised budgetary crises," Regional Studies, Taylor & Francis Journals, vol. 59(1), pages 2247016-224, December.
    13. Akalbeo, Benard & Martinez-Vazquez, Jorge & Yedgenov, Bauyrzhan, 2023. "Fiscal decentralization and structural versus cyclical unemployment levels," European Journal of Political Economy, Elsevier, vol. 80(C).
    14. Vidoli, Francesco & Sacchi, Agnese & Carrera, Edgar J. Sanchez, 2025. "Spatial regimes in heterogeneous territories: The efficiency of local public spending," Economic Modelling, Elsevier, vol. 151(C).
    15. Carlo Gianelle & Agnese Sacchi & Simone Salotti, 2026. "Heterogeneous Fiscal Decentralisation in Italian Regions," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper2607, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    16. Marc Garcia-Ruiz, 2024. "Does decentralization affect local entrepreneurial capacity?," IREA Working Papers 202413, University of Barcelona, Research Institute of Applied Economics, revised Feb 2024.

    More about this item

    JEL classification:

    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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