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How does fiscal decentralization affect aggregate, national, and subnational government size?

  • Jing Jin

    (Development Research Group, The World Bank)

  • Heng-fu Zou

    (School of Management, Peking University
    Institute for Advanced Study, Wuhan University
    Development Research Group, The World Bank)

Beyond conducting the usual regression analysis of the relationship between fiscal decentralization and aggregate government size (national and subnational combined), this paper makes the first attempt to examine how different fiscal decentralization measures affect the sizes of national and subnational (state and local combined) governments. An econometric analysis using panel data from 32 industrial and developing countries, 1980¨C1994, finds that (1) expenditure decentralization leads to smaller national governments, larger subnational governments, and larger aggregate governments; (2) revenue decentralization increases subnational governments by less than it reduces national governments, hence leads to smaller aggregate governments; and (3) vertical imbalance tends to increase the sizes of subnational, national, and aggregate governments.

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Paper provided by China Economics and Management Academy, Central University of Finance and Economics in its series CEMA Working Papers with number 72.

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Date of creation: 2000
Date of revision:
Publication status: Published in Journal of Urban Economics, Volume 52, Issue 2, September 2002, Pages 270-293
Handle: RePEc:cuf:wpaper:72
Contact details of provider: Web page: http://cema.cufe.edu.cn/

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  1. Nelson, Michael A, 1987. "Searching for Leviathan: Comment and Extension," American Economic Review, American Economic Association, vol. 77(1), pages 198-204, March.
  2. Tao Zhang & Heng-fu Zou, 1996. "Fiscal decentralization, public spending, and economic growth in China," Policy Research Working Paper Series 1608, The World Bank.
  3. Jan K. Brueckner, 1999. "Fiscal Decentralization in Developing Countries: The Effects of Local Corruption and Tax Evasion," CEMA Working Papers 1, China Economics and Management Academy, Central University of Finance and Economics, revised Apr 2000.
  4. P.J. Grossman, 1988. "Fiscal Decentralization and Government Size: An extension," Economics Discussion / Working Papers 88-16, The University of Western Australia, Department of Economics.
  5. Marlow, Michael L, 1991. " Privatization and Government Size," Public Choice, Springer, vol. 68(1-3), pages 273-76, January.
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