Fiscal Decentralization and Human Development in Selected Developing Countries in Asia: Role of Institutionali

Abstract

The paper aims to investigate the impact of fiscal decentralization on human development and moderating role of political institutions in selected Asian countries for the time period 1990-2019, applying panel data Fixed and Random Effects models. The empirical findings show that fiscal decentralization at both the provincial and local levels significantly affects human development. The optimal level of fiscal decentralization is computed at 1.143 and 0.229, respectively, suggesting that fiscal decentralization above this level may revert the results for human development. The non-linear specification of the model also portrays a rising human development in the wake of fiscal decentralization but at a decreasing rate. Moreover, the role of institutionalization is proved effective in the case of the countries where provincial-level decentralization is controlled in the model. The results imply that a lack of proper coordination and mismanagement due to many governance tiers can subside human development. However, fiscal decentralization is an essential factor for Asian countries to increase the efficiency of the public sector if supported with a controlled decentralization at the sub-national level.JEL Classification: H50, H70, O15