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Does fiscal decentralization foster regional investment in productive infrastructure?

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  • Kappeler , Andreas

    () (European Investment Bank)

  • Solé-Ollé, Albert

    () (University of Barcelona)

  • Stephan, Andreas

    () (Jönköping International Business School)

  • Välilä, Timo

    () (European Investment Bank)

Abstract

The aim of this paper is to analyze the effect of revenue decentralization on the provision of infrastructure at the sub-national level. We estimate the effects of revenue decentralization and earmarked grant financing on the level of sub-national infrastructure investment in 20 European countries over the period 1990-2009. The results are interpreted in light of the predictions of the theory on fiscal federalism. We find that it is sub-national infrastructure investment that increases after revenue decentralization and not investment in redistribution. However, the effect of revenue decentralization is lower the higher the use of earmarked grants to fund infrastructure investment.

Suggested Citation

  • Kappeler , Andreas & Solé-Ollé, Albert & Stephan, Andreas & Välilä, Timo, 2012. "Does fiscal decentralization foster regional investment in productive infrastructure?," Working Paper Series in Economics and Institutions of Innovation 273, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
  • Handle: RePEc:hhs:cesisp:0273
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    Citations

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    Cited by:

    1. Jonas Frank & Jorge Martinez-Vazquez, 2014. "Decentralization And Infrastructure: From Gaps To Solutions," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1405, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    2. Kemmerling, Achim & Stephan, Andreas, 2015. "Comparative political economy of regional transport infrastructure investment in Europe," Journal of Comparative Economics, Elsevier, vol. 43(1), pages 227-239.
    3. repec:eur:ejmsjr:268 is not listed on IDEAS
    4. repec:sgh:gosnar:y:2016:i:6:p:95-114 is not listed on IDEAS
    5. Guccio, Calogero & Pignataro, Giacomo & Rizzo, Ilde, 2014. "Do local governments do it better? Analysis of time performance in the execution of public works," European Journal of Political Economy, Elsevier, vol. 34(C), pages 237-252.
    6. Xinye Zheng & Feng Song & Yihua Yu & Shunfeng Song, 2015. "In Search of Fiscal Interactions: A Spatial Analysis of Chinese Provincial Infrastructure Spending," Review of Development Economics, Wiley Blackwell, vol. 19(4), pages 860-876, November.
    7. Guerriero, Carmine, 2013. "Endogenous Institutions and Economic Outcomes," MPRA Paper 70879, University Library of Munich, Germany, revised 21 Jan 2015.
    8. Halse, Askill H., 2016. "More for everyone: The effect of local interests on spending on infrastructure," European Journal of Political Economy, Elsevier, vol. 43(C), pages 41-56.
    9. Maria Jennifer Grisorio & Francesco Prota, 2015. "The Impact of Fiscal Decentralization on the Composition of Public Expenditure: Panel Data Evidence from Italy," Regional Studies, Taylor & Francis Journals, vol. 49(12), pages 1941-1956, December.
    10. Roy Bahl & Richard M. Bird, 2014. "Decentralization and Infrastructure: Principles and Practice," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1408, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.

    More about this item

    Keywords

    Regional investment; fiscal federalism; dynamic panel data;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • H76 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Other Expenditure Categories
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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