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Regional inequalities, fiscal decentralization and government quality: empirical evidence from simultaneous equations

Author

Listed:
  • Andreas P. Kyriacou
  • Leonel Muinelo-Gallo
  • Oriol Roca-Sagalés

Abstract

There are theoretical arguments supporting the view that regional income inequalities, the degree of fiscal decentralization and the quality of government are simultaneously determined. To the extent that previous work has considered feedback effects between them, it has done so through instrumental variable estimates based on instruments whose validity can be questioned. Moreover, most existing work has estimated the relationship between any two of these variables in the absence of the third. Our empirical evidence, drawn from a sample of 23 OECD countries and based on a simultaneous equation model which accounts for the joint determination of these three variables, suggests that a process of fiscal decentralization, accompanied by measures to improve the quality of government, would be an effective strategy for reducing regional inequalities.

Suggested Citation

  • Andreas P. Kyriacou & Leonel Muinelo-Gallo & Oriol Roca-Sagalés, 2015. "Regional inequalities, fiscal decentralization and government quality: empirical evidence from simultaneous equations," Working Papers. Collection A: Public economics, governance and decentralization 1501, Universidade de Vigo, GEN - Governance and Economics research Network.
  • Handle: RePEc:gov:wpaper:1501
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    File URL: http://infogen.webs.uvigo.es/WP/WP1501.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    regional inequalities; fiscal decentralization; governance; reverse causality; panel data; simultaneous equations models;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects

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