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On the Link Between Fiscal Decentralization and Public Debt in OECD Countries

  • Baskaran, Thushyanthan

Excessive borrowing by subnational governments is considered to be one of the perils of fiscal decentralization. On the other hand, fiscal decentralization might ensure the scal stability of the public sector by constraining Leviathan governments. Since the impact of decentralized government on fiscal outcomes is therefore ambiguous from a theoretical perspective, we explore this question empirically with a panel of 17 OECD countries over the 1975-2001 period. Our findings suggest that expenditure decentralization signicantly reduces public indebtedness, whereas tax decentralization and vertical fiscal imbalances are insignicant.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 21599.

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Date of creation: 2010
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Handle: RePEc:pra:mprapa:21599
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  22. Sharma, Chanchal Kumar, 2004. "Why Decentralization ? The Puzzle of causation," MPRA Paper 196, University Library of Munich, Germany, revised Feb 2005.
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