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New Evidence on Fiscal Decentralization and the Size of Government

  • Jon H. Fiva

This paper adds to the literature by utilizing improved data on tax revenue decentralization to re-examine 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 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 former effect seems to be driven by a reduction in social security transfers, while the latter effect seems to be driven by increased government consumption.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2005/wp-cesifo-2005-12/cesifo1_wp1615.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1615.

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Date of creation: 2005
Date of revision:
Handle: RePEc:ces:ceswps:_1615
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  1. Ernesto Stein, 1999. "Fiscal Decentralization and Government Size in Latin America," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 357-391, November.
  2. Jing Jin & Heng-fu Zou, 2000. "How does fiscal decentralization affect aggregate, national, and subnational government size?," CEMA Working Papers 72, China Economics and Management Academy, Central University of Finance and Economics.
  3. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
  4. 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.
  5. 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.
  6. Fisman, Raymond & Gatti, Roberta, 2002. "Decentralization and corruption: evidence across countries," Journal of Public Economics, Elsevier, vol. 83(3), pages 325-345, March.
  7. Dani Rodrik, 1997. "Has Globalization Gone Too Far?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 57, May.
  8. Dan Stegarescu, 2005. "Public sector decentralisation: measurement concepts and recent international trends," Fiscal Studies, Institute for Fiscal Studies, vol. 26(3), pages 301-333, September.
  9. 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.
  10. Rodrik, Dani, 1996. "Why do More Open Economies Have Bigger Governments?," CEPR Discussion Papers 1388, C.E.P.R. Discussion Papers.
  11. Ebel, Robert D. & Yilmaz, Serdar, 2002. "On the measurement and impact of fiscal decentralization," Policy Research Working Paper Series 2809, The World Bank.
  12. Hans-Werner Sinn, 2004. "The New Systems Competition," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 5(1), pages 23-38, 02.
  13. Rodden, Jonathan, 2003. "Reviving Leviathan: Fiscal Federalism and the Growth of Government," International Organization, Cambridge University Press, vol. 57(04), pages 695-729, September.
  14. Oates, Wallace E, 1985. "Searching for Leviathan: An Empirical Study," American Economic Review, American Economic Association, vol. 75(4), pages 748-57, September.
  15. Philip Grossman, 1989. "Fiscal decentralization and government size: An extension," Public Choice, Springer, vol. 62(1), pages 63-69, July.
  16. Ehdaie, Jaber, 1994. "Fiscal decentralization and the size of the government : an extension with evidence from cross-country data," Policy Research Working Paper Series 1387, The World Bank.
  17. 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, vol. 5(2), pages 171-186, May.
  18. repec:cup:cbooks:9780521027922 is not listed on IDEAS
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