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Fiscal decentralization and regional disparities: the importance of good governance


  • Leonel Muinelo-Gallo

    () (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía)

  • Andreas P. Kyriacou

    () (Universitat de Girona (España). Departament d’Economia)

  • Oriol Roca-Sagalés

    () (Universitat Autònoma de Barcelona (España). Departament d’Economia Aplicada)


In this paper we consider how government quality mediates the relationship between fiscal decentralization and regional disparities. Previous work has argued that fiscal decentralization has the potential to reduce income difference across regions but that this potential may not be realized because of governance problems associated with subnational authorities. Our empirical evidence based on a sample of 24 OECD countries over the period 1984 to 2006 lends a measure of support to this idea. We find that fiscal decentralization promotes regional convergence in high government quality settings but, worryingly, it leads to wider regional disparities in countries with poor governance. Because most poor countries are plagued with governance problems, this would caution against fiscal decentralization with a view to reducing regional disparities in these countries.

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  • Leonel Muinelo-Gallo & Andreas P. Kyriacou & Oriol Roca-Sagalés, 2013. "Fiscal decentralization and regional disparities: the importance of good governance," Documentos de Trabajo (working papers) 13-03, Instituto de Economía - IECON.
  • Handle: RePEc:ulr:wpaper:dt-03-13

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    Cited by:

    1. Massimiliano Agovino & Alessandro Crociata & Pier Sacco, 2016. "Location matters for pro-environmental behavior: a spatial Markov Chains approach to proximity effects in differentiated waste collection," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 56(1), pages 295-315, January.
    2. repec:hpe:journl:y:2016:v:219:i:4:p:9-34 is not listed on IDEAS
    3. Yuanshuo Xu & Mildred E Warner, 2016. "Does devolution crowd out development? A spatial analysis of US local government fiscal effort," Environment and Planning A, , vol. 48(5), pages 871-890, May.
    4. Roberto Ezcurra & Andr Rodríguez-Pose, 2014. "Government quality and spatial inequality: a cross-country analysis," Environment and Planning A, Pion Ltd, London, vol. 46(7), pages 1732-1753, July.
    5. Masayoshi Hayashi, 2013. "On the Decomposition of Regional Stabilization and Redistribution," CIRJE F-Series CIRJE-F-910, CIRJE, Faculty of Economics, University of Tokyo.
    6. repec:bla:jecsur:v:31:y:2017:i:4:p:1095-1129 is not listed on IDEAS
    7. Jorge Martinez-Vazquez & Santiago Lago-Peñas & Agnese Sacchi, 2017. "The Impact Of Fiscal Decentralization: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 31(4), pages 1095-1129, September.
    8. repec:kap:itaxpf:v:24:y:2017:i:2:d:10.1007_s10797-016-9416-1 is not listed on IDEAS
    9. Andreas P. Kyriacou & Leonel Muinelo-Gallo & Oriol Roca-Sagalés, 2015. "Regional inequalities, fiscal decentralization and government quality: empirical evidence from simultaneous equations," Working Papers. Collection A: Public economics, governance and decentralization 1501, Universidade de Vigo, GEN - Governance and Economics research Network.
    10. Giannola, Adriano & Petraglia, Carmelo & Scalera, Domenico, 2016. "Net fiscal flows and interregional redistribution in Italy: A long-run perspective (1951–2010)," Structural Change and Economic Dynamics, Elsevier, vol. 39(C), pages 1-16.
    11. Muinelo-Gallo, Leonel & Rodriguez-Miranda, Adrián & Castro-Scavone, Pablo, 2017. "Intergovernmental transfers and regional income inequalities in Uruguay," MPRA Paper 76983, University Library of Munich, Germany.
    12. Yongzheng Liu & Jorge Martinez-Vazquez & Alfred M. Wu, 2017. "Fiscal decentralization, equalization, and intra-provincial inequality in China," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(2), pages 248-281, April.
    13. Byeong-il, Ahn & Younghyeon, Jeon, 2016. "Does tariff reduction have a positive effect on the world’s grain self-sufficiency?," 2016 Annual Meeting, July 31-August 2, 2016, Boston, Massachusetts 235578, Agricultural and Applied Economics Association.
    14. Antonio N. Bojanic, 2016. "Fiscal Decentralization, Economic Freedom, and Political and Civil Liberties in the Americas," Working Papers 1609, Tulane University, Department of Economics.

    More about this item


    fiscal decentralization; regional disparities; government quality;

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects

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