Vertical fiscal imbalances and the accumulation of government debt
The implications of delegating fiscal decision making power to sub-national governments has become an area of significant interest over the past two decades, in the expectation that these reforms will lead to better and more efficient provision of public goods and services. The move towards decentralization has, however, not been homogeneously implemented on the revenue and expenditure side: decentralization has materialized more substantially on the latter than on the former, creating vertical fiscal imbalances. These imbalances measure the extent to which sub-national governments' expenditures are financed through their own revenues. This mismatch between own revenues and expenditures may have negative consequences for public finances performance, for example by softening the budget constraint of sub-national governments. Using a large sample of countries covering a long time period from the IMF's Government Finance Statistics Yearbook, this paper is the first to examine the effects of vertical fiscal imbalances on fiscal performance through the accumulation of government debt. Our findings suggest that vertical fiscal imbalances are indeed relevant in explaining government debt accumulation, and call for a degree of caution when promoting fiscal decentralization.
|Date of creation:||2014|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +49 (0)69 798-30080
Fax: +49 (0)69 798-30077
Web page: http://safe-frankfurt.de/Email:
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Pasaran, M.H. & Im, K.S. & Shin, Y., 1995.
"Testing for Unit Roots in Heterogeneous Panels,"
Cambridge Working Papers in Economics
9526, Faculty of Economics, University of Cambridge.
- Breitung, Jörg & Pesaran, Mohammad Hashem, 2005.
"Unit roots and cointegration in panels,"
Discussion Paper Series 1: Economic Studies
2005,42, Deutsche Bundesbank, Research Centre.
- Breitung, J. & Pesaran, M.H., 2005. "Unit Roots and Cointegration in Panels," Cambridge Working Papers in Economics 0535, Faculty of Economics, University of Cambridge.
- Joerg Breitung & M. Hashem Pesaran, 2005. "Unit Roots and Cointegration in Panels," CESifo Working Paper Series 1565, CESifo Group Munich.
- Jörg Breitung & M. Hashem Pesaran, 2005. "Unit Roots and Cointegration in Panels," IEPR Working Papers 05.32, Institute of Economic Policy Research (IEPR).
- Izabela Karpowicz, 2012. "Narrowing Vertical Fiscal Imbalances in Four European Countries," IMF Working Papers 12/91, International Monetary Fund.
- Eyraud, Luc & Lusinyan, Lusine, 2013. "Vertical fiscal imbalances and fiscal performance in advanced economies," Journal of Monetary Economics, Elsevier, vol. 60(5), pages 571-587.
- Oates, Wallace E, 1985. "Searching for Leviathan: An Empirical Study," American Economic Review, American Economic Association, vol. 75(4), pages 748-57, September.
- Andres Velasco, 1999. "A Model of Endogenous Fiscal Deficits and Delayed Fiscal Reforms," NBER Chapters, in: Fiscal Institutions and Fiscal Performance, pages 37-58 National Bureau of Economic Research, Inc.
- Mike Seiferling, 2013. "Recent Improvements to the Government Finance Statistics Yearbook Database in Response to Analytical Needs," IMF Working Papers 13/15, International Monetary Fund.
- de Mello, Luiz Jr, 2000. "Fiscal Decentralization and Intergovernmental Fiscal Relations: A Cross-Country Analysis," World Development, Elsevier, vol. 28(2), pages 365-380, February.
- Wallace E. Oates, 2006.
"On the Theory and Practice of Fiscal Decentralization,"
2006-05, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
- Wallace E. Oates, 2007. "On the Theory and Practise of Fiscal Decentralization," Working Papers 0701, CREI Università degli Studi Roma Tre, revised Jan 2007.
- repec:ner:tilbur:urn:nbn:nl:ui:12-3125517 is not listed on IDEAS
- Wildasin, David E., 2004.
"The Institutions of Federalism: Toward an Analytical Framework,"
National Tax Journal,
National Tax Association, vol. 57(2), pages 247-72, June.
- David E. Wildasin, 2004. "The Institutions of Federalism: Toward an Analytical Framework," Public Economics 0403006, EconWPA.
- Panizza, Ugo, 1999. "On the determinants of fiscal centralization: Theory and evidence," Journal of Public Economics, Elsevier, vol. 74(1), pages 97-139, October.
- Wildasin, David E., 1997.
"Externalities and bailouts : hard and soft budget constraints in intergovernmental fiscal relations,"
Policy Research Working Paper Series
1843, The World Bank.
- David E. Wildasin, 2001. "Externalities and Bailouts: Hard and Soft Budget Constraints in Intergovernmental Fiscal Relations," Public Economics 0112002, EconWPA.
- Thornton, John, 2007. "Fiscal decentralization and economic growth reconsidered," Journal of Urban Economics, Elsevier, vol. 61(1), pages 64-70, January.
- J�nos Kornai & Eric Maskin & G�rard Roland, 2003.
"Understanding the Soft Budget Constraint,"
Journal of Economic Literature,
American Economic Association, vol. 41(4), pages 1095-1136, December.
- J. Kornai & E. Maskin & G. Roland., 2004. "Understanding the Soft Budget Constraint," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 11.
- J. Kornai & E. Maskin & G. Roland., 2004. "Understanding the Soft Budget Constraint," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 12.
- Thushyanthan Baskaran, 2010.
"On the link between fiscal decentralization and public debt in OECD countries,"
Springer, vol. 145(3), pages 351-378, December.
- Baskaran, Thushyanthan, 2010. "On the Link Between Fiscal Decentralization and Public Debt in OECD Countries," MPRA Paper 21599, University Library of Munich, Germany.
- Ernesto Crivelli & Adam Leive & Thomas Stratmann, 2010. "Subnational Health Spending and Soft Budget Constraints in OECD Countries," IMF Working Papers 10/147, International Monetary Fund.
- Sharma, Chanchal Kumar, 2004. "Why Decentralization ? The Puzzle of causation," MPRA Paper 196, University Library of Munich, Germany, revised Feb 2005.
- Stegarescu, Dan, 2004. "Public Sector Decentralization: Measurement Concepts and Recent International Trends," ZEW Discussion Papers 04-74, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
- Wallace E. Oates, 1999. "An Essay on Fiscal Federalism," Journal of Economic Literature, American Economic Association, vol. 37(3), pages 1120-1149, September.
- Fernando Filgueira & Fernando Lorenzo & Juan Andrés Moraes & Herman Kamil & Andrés Rius, 2002. "Decentralization and Fiscal Discipline in Subnational Governments:The Bailout Problem in Uruguay," Research Department Publications 3152, Inter-American Development Bank, Research Department.
- Markus Freitag & Adrian Vatter, 2008. "Decentralization and Fiscal Discipline in Sub-national Governments: Evidence from the Swiss Federal System," Publius: The Journal of Federalism, Oxford University Press, vol. 38(2), pages 272-294, Spring.
- Michael Marlow, 1988. "Fiscal decentralization and government size," Public Choice, Springer, vol. 56(3), pages 259-269, March.
When requesting a correction, please mention this item's handle: RePEc:zbw:safewp:61. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.