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Does fiscal decentralization foster regional investment in productive infrastructure?

  • Andreas Kappeler

    ()

    (European Investment Bank)

  • Albert Solé-Ollé

    ()

    (Universitat de Barcelona & IEB)

  • Andreas Stephan

    ()

    (Jönköping University)

  • Timo Välilä

    ()

    (European Investment Bank)

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.

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Paper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2012/32.

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Length: 37 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:ieb:wpaper:2012/6/doc2012-32
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