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Unfunded mandates and the economic impact of decentralisation. When finance does not follow function

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  • Rodríguez-Pose, Andrés
  • Vidal-Bover, MIquel

Abstract

Decentralisation has frequently been sold as a means to increase well-being and development. Yet, questions remain as to whether decentralisation improves economic performance. This is possibly because decentralisation processes have often led to “unfunded mandates†, that is a mismatch between the powers transferred to subnational tiers of government and the resources allocated to them. In this paper we analyse how unfunded mandates shape regional economic growth across 518 regions in 30 OECD countries over the period 1997-2018. There is a negative, statistically significant, and robust impact of unfunded mandates on economic growth. This effect is higher in more politically and less fiscally decentralised regions and in regions with a higher level of wealth. Unfunded mandates thus represent a serious drag on the potential positive economic effect of political decentralisation. Hence, for those benefits to materialise, better not more decentralisation —ensuring that finance follows function— should be pursued.

Suggested Citation

  • Rodríguez-Pose, Andrés & Vidal-Bover, MIquel, 2022. "Unfunded mandates and the economic impact of decentralisation. When finance does not follow function," CEPR Discussion Papers 17613, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:17613
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    2. 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.
    3. Yuanshuo Xu & Mildred E. Warner, 2026. "Maintaining redistribution despite austerity: Spatial diversity in US local government expenditures 2007–2017," Urban Studies, Urban Studies Journal Limited, vol. 63(4), pages 824-843, March.
    4. Miriam Hortas-Rico & David Martínez-Algora, 2025. "Unfunded Mandates, Institutional Quality, and Social Progress: An Analysis for OECD Countries," IDEAGOV Working Papers WP2501, IDEAGOV - International Center for Decentralization and Governance.
    5. Sarah Shair-Rosenfield, 2026. "The Delicate Balance of Special Autonomy Agreements: Lessons from Indonesia and the Philippines," IDEAGOV Working Papers WP2607, IDEAGOV - International Center for Decentralization and Governance.
    6. 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.

    More about this item

    JEL classification:

    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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