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Income inequality, regional disparities and fiscal decentralization in industrialized countries

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Abstract

In this paper we investigate the interactions among fiscal decentralization, income inequality and regional disparities, using a sample of 23 OECD countries over the period 1971-2000. We first explore the effects of fiscal decentralization on overall income inequality. We then test whether regional economic disparities influence the fiscal decentralization process. We use novel and robust measures of fiscal decentralization based on differences in the degree of both expenditure and tax autonomy. We also conduct several robustness checks to tackle the potential endogeneity and reverse causality issues. Our results highlight the importance both of the nature of fiscal decentralization – expenditure versus taxation – and of the extent to which responsibility and decision powers are really left to subcentral governaments. While a higher degree of tax decentralization is associated with higher overall income inequality within a country, high regional disparities seem to be correlated with lower expenditure decentralization.

Suggested Citation

  • Agnese Sacchi, 2011. "Income inequality, regional disparities and fiscal decentralization in industrialized countries," Departmental Working Papers of Economics - University 'Roma Tre' 0142, Department of Economics - University Roma Tre.
  • Handle: RePEc:rtr:wpaper:0142
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    File URL: http://dipeco.uniroma3.it/public/WP%20142%20Sacchi%20Salotti%202011.pdf
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    Cited by:

    1. Richard M. Bird, 2012. "Fiscal Decentralization in Colombia: A Work (Still) in Progress," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1223, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.

    More about this item

    Keywords

    tax decentralization; expenditure decentralization; regional economic disparities;

    JEL classification:

    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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