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Decentralization and Political Institutions

Listed author(s):
  • Ruben Enikolopov

    ()

    (Department of Economics, Harvard University)

  • Ekaterina Zhuravskaya

    ()

    (Center for Economic and Financial Research)

Does fiscal decentralization lead to more efficient governance, better public goods, and higher economic growth? This paper tests hypotheses of the theoretical literature that results of decentralization depend on features of political institutions. Using data from up to 95 countries for 25 years we show that the effect of fiscal decentralization strongly depends on two aspects of political centralization: 1) strength of national party system (measured by the age of main parties and fractionalization of government parties) and 2) subordination (whether local and state executives are appointed or elected). We find solid support for Riker’s theory (1964): in developing countries, strong parties significantly improve the results of fiscal decentralization for economic growth, quality of government, and public goods provision. There is also some evidence from developing countries that administrative subordination of local to higher-level authorities improves decentralization results.

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File URL: http://www.sss.ias.edu/publications/papers/econpaper45.pdf
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Paper provided by Institute for Advanced Study, School of Social Science in its series Economics Working Papers with number 0045.

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Length: 49 pages
Date of creation: Mar 2004
Handle: RePEc:ads:wpaper:0045
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