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Measuring Fiscal Decentralisation: An Entropic Approach

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  • Duc Hong Vo

    (UWA Business School, University of Western Australia)

Abstract

Fiscal decentralisation has attracted attention from government, academic studies, and international institutions with the aims of enhancing economic growth in recent years. One of the difficult issues is to measure satisfactorily the degree of fiscal decentralisation across countries. This study helps resolve the problem by developing the fiscal decentralisation index which accounts for both fiscal autonomy and fiscal importance of subnational governments. While the index is an advance on current practice, it is still not perfect as it assumes there is no dispersion of revenue and expenditure across regions. In response to this weakness, fiscal entropy and fiscal inequality measures are developed using information theory (Theil, 1967). It is shown how fiscal inequality can be decomposed regionally and hierarchically. These ideas are illustrated with Australia data pertaining to federal, state and local levels of governments.

Suggested Citation

  • Duc Hong Vo, 2006. "Measuring Fiscal Decentralisation: An Entropic Approach," Economics Discussion / Working Papers 06-28, The University of Western Australia, Department of Economics.
    • Handle: RePEc:uwa:wpaper:06-28
    as

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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Fiscal Decentralisation; Fiscal Autonomy; Fiscal Importance; Australia;
    All these keywords.

    JEL classification:

    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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