Fiscal Decentralization and Economic Growth: A Cross-Country Study

Abstract

We use a panel data set of 46 countries over the 1970᎐1989 period to investigate the relationship between fiscal decentralization and economic growth. We find a negative relationship between fiscal decentralization and growth in developing countries, but none in developed countries. Several explanations are offered for our findings.

Fiscal decentralization and economic growth in Colombia: Evidence from regional-level panel data

“…In addition, an unexpected sign was found for the initial human capital parameter. This is not exclusive to our paper and requires more detailed analysis (see Davoodi and Zou, 1998). …”

“…We omit the time subscripts for simplicity. In order to introduce the fiscal decentralization discussion, government purchases are disaggregated into the shares financed by central, state and local authorities (Davoodi and Zou, 1998). Without loss of generality, we consider only two levels, namely central and local governments (Kim, 2013;Iimi, 2005), causing the production function to be written as follows:…”

Foreign Direct Investment in the Financial Sector: The Engine of Growth for Central and Eastern Europe?

“…But we have to consider that panel data regressions based on annual frequency data, without controlling for time-specific effects, are often determined by short-run movements or by business cycle fluctuations (see Eller 2004). As a consequence, it is broadly acknowledged to construct perennial averages or to use annual data with time-specific dummies in order to capture the likelihood of short-run effects (see Davoodi & Zou 1998).…”

Federalism and accountability with distorted election choices

“…Important aspects for this relationship are bench-marking and yardstick competition, see Besley and Case (1995) and Revelli and Tovmo (2007), lobbying and rent-seeking, see Wärneryd (1998) and Cheikbossian (2008), state capture, see Bardhan and Mokherjee (2000), and the role of …s-cal equalization, see Kotsogiannis and Schwager (2008). Several studies consider the relationship between decentralization and economic performance, typically measured by economic growth, see, among others, Davoudi and Zou (1998), and Thornton (2007). The study also relates to the literature on retrospective voting and accountability by Austen-Smith and Banks (1989) and Ferejohn (1986).…”