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Regional Inequality and Decentralization - An Empirical Analysis

  • Christian Lessmann

This paper analyzes the impact of political and fiscal decentralization on regional inequalities using a unique data set which covers 56 countries at different stages of economic develop-ment. Cross-section and panel data estimations show that decentralization decreases regional inequalities in general. However, estimations using an interaction variable approach imply that the effect depends on the level of economic development. While rich countries benefit from decentralization with regard to a more equal regional income distribution, decentralization may lead to higher regional inequalities in developing and emerging economies. The results are pointing in the same direction for measures of fiscal and political decentralization implying that both - autonomy in decision making and fiscal authority - are decisive in this context. Thus, when fostering decentralization in developing countries - as proposed by international development agencies - the potential negative redistributional consequences should be taken into account.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2011/wp-cesifo-2011-08/cesifo1_wp3568.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3568.

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Date of creation: 2011
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Handle: RePEc:ces:ceswps:_3568
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  4. Nobuo Akai & Masayo Sakata, 2005. "Fiscal Decentralization, Commitment and Regional Inequality: Evidence from State-level Cross-sectional Data for the United States," CIRJE F-Series CIRJE-F-315, CIRJE, Faculty of Economics, University of Tokyo.
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  7. Christian Lessmann, 2009. "Fiscal decentralization and regional disparity: evidence from cross-section and panel data," Environment and Planning A, Pion Ltd, London, vol. 41(10), pages 2455-2473, October.
  8. Roberto Ezcurra & Andrés Rodríguez-Pose, 2009. "Does decentralization matter for regional disparities? A cross-country analysis," LSE Research Online Documents on Economics 33244, London School of Economics and Political Science, LSE Library.
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  23. Anke S. Kessler & Nico A. Hansen & Christian Lessmann, 2011. "Interregional Redistribution and Mobility in Federations: A Positive Approach," Review of Economic Studies, Oxford University Press, vol. 78(4), pages 1345-1378.
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