Fiscal Decentralization and Economic Growth in Thailand: A Cross-Region Analysis

Abstract

Prior to the 1997 decentralization, over 90% of national revenue in Thailand were held at the central government and less than 10% of public expenditure were allocated to local governments across country. Lack of adequate revenue and access to sufficient expenditure budget has caused disparity and ineffectiveness of public services and economic development at the local level. This study examines the effects of the fiscal decentralization on the economic growth in Thailand from 2004 to 2017. The research methodology uses a cross panel data analysis across five provincial regions and considers revenue decentralization, expenditure decentralization, transfer dependency, and vertical fiscal imbalance as influential factors of growth. By applying Panel Fully Modified Least Squares (FMOLS) and Panel Dynamic Least Squares (DOLS) regression approaches, the study finds empirical evidence of positive effects of revenue decentralization, transfer dependency, and vertical fiscal imbalance on regional economic growth across five regions. However, this study also finds that expenditure decentralization has a negative impact on regional economic growth, but level of significance is weak. These findings suggest that the rapid increase in metropolis government expenditure budget following the years of political transition in 2006 and 2014 has caused stagnation in public investment at local level across country, thereby resulted in a lagged behind industrial output and gross provincial product. Lack of budget expenditures also weakens demand and stagnates growth in manufacturing, construction, and real estate activities, thereby rendering fiscal imbalances and development gaps in Thai economy.

The relationship between city size, decentralisation and economic growth

“…It is also consistent with the empirical results of Carniti et al (2019) who find a positive relationship between decentralisation and growth (however they note that this relationship is not linear). Similarly, Canavire-Bacarreza et al (2020), Thanh and Canh (2020), Nantharath et al (2020) and Rodr ıguez-Pose and Mu stra (2022) find a positive relationship between fiscal decentralisation and economic growth.…”

“…Firstly, there has been a global trend towards fiscal decentralisation over the past 30 years (Canavire-Bacarreza et al, 2020). Fiscal decentralisation proponents contend that higher levels of economic growth and improved government efficiency result from greater proximity to businesses and citizens helping government decision-makers better comprehend the needs and demands of citizens (Oates, 1972;Tiebout, 1956;Giordano, 2000;Morgan, 2002;Rodr ıguez-Pose and Sandall, 2008;Canavire-Bacarreza et al, 2020;Nantharath et al, 2020;Li et al, 2021). Academics, national governments and organisations appear convinced of the economic benefits of fiscal decentralisation (Rogr ıguez-Pose and Kroijer, 2009).…”

Does Balancing Fund Affect Economic Growth and Poverty Level in Central Java?

“…Fiscal autonomy has a positive influence on economic growth across provinces in Vietnam (Nguyen et al, 2019). The study found empirical evidence of positive results of revenue decentralization, transfer dependency, and vertical fiscal imbalance on regional economic growth across 5 regions (Nantharath et al, 2020). The economic growth has significant effect on the social welfare (Simanjuntak et al, 2017).…”

Analisis Desentralisasi Fiskal Terhadap Pertumbuhan Ekonomi di Sumtera Utara

“…ketergantungan transfer menggambarkan seberapa besar ketergantungan daerah terhadap dana yang ditransfer oleh pusat dalam hal pengelolaan keuangan daerah. Indikator tersebut dihitung dari rasio antara dana transfer dengan total penerimaan daerah.. Hal ini sejalan dengan penelitian (Nantharath et al, 2019) yang memiliki hasil bahwa ketergantungan transfer dari pemerintah pusat ke pemerintah daerah berpengaruh positif terhadap pertumbuhan ekonomi.…”

“…Namun, hasil penelitian ini bertentangan dengan penelitian dari (Nantharath et al 2019) yang menunjukkan bahwa desentralisasi pengeluaran berpengaruh negatif terhadap pertumbuhan ekonomi. hal ini disebabkan oleh ketidakstabilan politik yang memberikan dampak signifikan pada hubungan antara pemerintah pusat dan daerah, khususnya pada redistribusi anggaran pemerintah daerah di seluruh negara.…”