The Effects of Fiscal Decentralization on Publicly Provided Services and Labor Markets

Abstract

This paper studies how fiscal decentralization affects local services. It exploits a 1993 reform that increased the fiscal autonomy of Italian municipalities by introducing a local property tax. The identification leverages cross-municipal variation in the degree of decentralization stemming from Allied bombings during WWII. Decentralization reduced overall spending, but expanded municipal services, such as nursery schools. These effects are larger in areas with higher political competition. The paper also investigates how these changes in local services affected the labor markets. Decentralization, likely through expanded nursery schools, increased female labor supply, reducing the gender gap in employment.JEL Classification: H71, H75, J20, H77, I21.

Fiscal Decentralization and Gender Parity in Developing Asia

“…Kelkar (2005) claimed that female poverty is mainly caused by underemployment that, in turn, worsen the disparity in gender relations in South Asia. Bianchi et al (2019) found that fiscal decentralization is positively associated with female employment in Italy. Hence improving the components of gender parity through fiscal decentralization, improve the overall gender parity index.…”

“…A large body of literature has investigated the impact of fiscal decentralization on different socioeconomic indicators e.g. economic growth (Cantarero & Gonzalez, 2009;Leonov et al, 2012;Martinez-Vazquez & McNab, 2006), health and education (Asfaw et al, 2007;Stotsky, 2019), income inequality (Boex et al, 2006;Grisorio & Prota, 2015) and employment (Bianchi et al, 2019;Martinez-Vazquez & Yao, 2009). The empirical literature shows that micro and macroeconomic indicators have different effects on gender related indicators in different countries.…”

“…Additionally, decentralization can have somewhat different effects on public employment subject to the level of development and institutional environment in a country. Bianchi et al (2019) analyzed fiscal decentralization and labor markets for Italian municipalities. The results showed that decentralization increased the female participation in the labor market as compare to pre fiscal decentralization period.…”