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Fiscal decentralisation in times of financial crises

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  • David Bartolini
  • Agnese Sacchi
  • Simone Salotti
  • Raffaella Santolini

Abstract

The virtues of fiscal decentralisation are usually assessed against the provision of local public goods, little is said about its impact on public finances. There is, however, a growing concern that central governments losing control over part of the budget could negatively affect public finances, especially in times of adverse financial conditions. The present work shows that these concerns are misplaced. The empirical investigation on 19 OECD countries, over the period 1980-2010, shows that expenditure decentralisation improves the central budget balance without prejudice for local budgets, thus improving the overall country’s fiscal position. This effect is reinforced when combined with tax autonomy. During periods of financial crises, the disciplinary role of fiscal decentralisation appears to be even stronger, raising concerns about the recentralisation trend recently pursued by some advanced economies precisely to face fiscal distress and economic stagnation.

Suggested Citation

  • David Bartolini & Agnese Sacchi & Simone Salotti & Raffaella Santolini, 2015. "Fiscal decentralisation in times of financial crises," Working Papers. Collection A: Public economics, governance and decentralization 1506, Universidade de Vigo, GEN - Governance and Economics research Network.
  • Handle: RePEc:gov:wpaper:1506
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    Cited by:

    1. repec:oup:cesifo:v:64:y:2018:i:3:p:339-344. is not listed on IDEAS
    2. Santiago Lago-Peñasa & Jorge Martinez-Vazquez & Agnese Sacchic, 2018. "Fiscal stability during the Great Recession: Putting decentralization design to the test," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1805, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.

    More about this item

    Keywords

    Fiscal decentralisation; government budget balance; banking crisis.;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations

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