A Comprehensive Analysis of Expenditure Decentralization and of the Composition of Local Public Spending

Abstract

Many industrialized countries have recently implemented fiscal decentralization reforms assigning more competences and spending responsibilities to sub-national governments. In this paper we investigate what leads to the decentralization of different categories of public expenditure in 19 developed countries over the period 1980-2006. Adopting a general-to-specific empirical approach, we estimate different models for each of the spending functions under analysis. Our results confirm existing findings on the negative link between regional income disparities and expenditure decentralization. A similarly negative relationship is found for a set of demographic variables, leading to the conclusion that macroeconomic and, more importantly, political factors are the key to explain the recently increased decentralization levels in most industrialized countries. Finally, we complete our analysis by studying what determines the sub-national expenditure composition, finding that political and demographic changes are the most important factors in shaping the local spending mix.

Are local public services better delivered in more autonomous regions? Evidence from European regions using a dose‐response approach

“…There are countries such as Bulgaria, Estonia, Lithuania, the Netherlands, Slovenia and Sweden where regions have no specific competences on their own; federal countries like Belgium, in which regional governments have no competences on education, or like Germany, in which instead the Lands have competences above a large number of services. Similar patterns can be found for other local public services (e.g., health) (see also Sacchi and Salotti ).…”

“…In line with this approach we employ a measure of the quality of local public services provided by the Quality of Government Survey (Quality of Government Institute ; Charron et al ) based on the citizens' perception of three local public services: education, health and law enforcement. These are also those public services that are usually investigated in decentralization studies (Sacchi and Salotti ).…”

“…There are a number of problems associated with these measures since they tend to overestimate the degree of fiscal autonomy (Stegarescu ). In addition, they disregard the multifaceted nature of decentralization in that they take into account only the financial dimension, while in fact countries' functioning in terms of distribution of power, responsibility, and resources among different tiers of government is defined also by administrative and political decentralization (Sacchi and Salotti ).…”

Top‐down and Bottom‐up: Institutional Effects on Debt and Grants at the English and German Local Level

“…Log‐transformation has been applied, which is a common procedure in the empirical literature on local finances (e.g. Sacchi and Salotti ). As an additional robustness test, debt has been calculated as percentage of a locality's total current income.…”

“…The dependent variable is total debt size per capita (p/c). Log-transformation has been applied, which is a common procedure in the empirical literature on local finances (e.g Sacchi and Salotti 2016)…”