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Regional inequality and decentralization – an empirical analysis

  • Christian Lessmann

    ()

    (Technische Universität Dresden & CESifo)

This paper analyzes the impact of political and fiscal decentralization on regional inequalities using a unique data set which covers 56 countries at different stages of economic development. Cross-section and panel data estimations show that decentralization decreases regional inequalities in general. However, estimations using an interaction variable approach imply that the effect depends on the level of economic development. While rich countries benefit from decentralization with regard to a more equal regional income distribution, decentralization may lead to higher regional inequalities in developing and emerging economies. The results are pointing in the same direction for measures of fiscal and political decentralization implying that both -autonomy in decision making and fiscal authority- are decisive in this context. Thus, when fostering decentralization in developing countries -as proposed by international development agencies- the potential negative redistributional consequences should be taken into account.

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Paper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2012/20.

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Length: 45 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:ieb:wpaper:2012/6/doc2012-20
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  1. Andrés Rodríguez-Pose & Roberto Ezcurra, 2010. "Does decentralization matter for regional disparities? A cross-country analysis," Journal of Economic Geography, Oxford University Press, vol. 10(5), pages 619-644, September.
  2. Phillip Swagel & Steven Vincent Dunaway & Martin David Kaufman, 2003. "Regional Convergence and the Role of Federal Transfers in Canada," IMF Working Papers 03/97, International Monetary Fund.
  3. Lessmann, Christian, 2009. "Fiscal decentralization and regional disparity: Evidence from cross-section and panel data," Dresden Discussion Paper Series in Economics 08/09, Dresden University of Technology, Faculty of Business and Economics, Department of Economics.
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  26. repec:oup:restud:v:78:y::i:4:p:1345-1378 is not listed on IDEAS
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