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Fiscal decentralization and the size of the government : an extension with evidence from cross-country data

  • Ehdaie, Jaber
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    Prior analyses of the relationship between fiscal decentralization and the size of government treat fiscal decentralization as the decentralization of either taxing or spending powers. But decisions about taxation and spending are inseparable. The author corrects this deficiency and analyzes the effect of simultaneous decentralization of taxing and spending powers -"fiscal decentralization"- on the overall size of the public sector using cross-country data. The economic results of his study show that: (a) The simultaneous decentralization of the national government's taxing and spending powers tend to reduce the size of the public sector. (b) The Revenue-sharing arrangements in which decisions about taxation are made by the national government tend to eliminate the constraining effect of the decentralized spending power. What do these findings suggest? Countries, such as economies in transition, that want to reduce the size of the public sector should decentralize both taxing and spending decisions.

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    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1387.

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    Date of creation: 31 Dec 1994
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    Handle: RePEc:wbk:wbrwps:1387
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    1. P.J. Grossman, 1988. "Fiscal Decentralization and Government Size: An extension," Economics Discussion / Working Papers 88-16, The University of Western Australia, Department of Economics.
    2. P.J. Grossman, 1988. "Fiscal Decentralization and Public Sector Size in Australia," Economics Discussion / Working Papers 88-12, The University of Western Australia, Department of Economics.
    3. Philip J. Grossman, 1987. "Federalism and the Size of Government," School of Economics Working Papers 1987-07, University of Adelaide, School of Economics.
    4. Brennan, Geoffrey & Buchanan, James M., 1977. "Towards a tax constitution for Leviathan," Journal of Public Economics, Elsevier, vol. 8(3), pages 255-273, December.
    5. Marilyn Young & Michael Reksulak & William F. Shughart, 2001. "The Political Economy of the IRS," Economics and Politics, Wiley Blackwell, vol. 13(2), pages 201-220, 07.
    6. Bird, Richard & Wallich, Christine, 1993. "Fiscal decentralization and intergovernmental relations in transition economics : toward a systematic framework of analysis," Policy Research Working Paper Series 1122, The World Bank.
    7. Nelson, Michael A, 1987. "Searching for Leviathan: Comment and Extension," American Economic Review, American Economic Association, vol. 77(1), pages 198-204, March.
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