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Fiscal decentralization and efficiency: empirical evidence from Italian municipalities

bucci, valeria and ferrara, giancarlo and resce, giuliano (2022): Fiscal decentralization and efficiency: empirical evidence from Italian municipalities.

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Abstract

This paper investigates the association between fiscal decentralization and municipality efficiency by conducting an empirical analysis focused on the Italian context. We conduct a cost efficiency analysis based on a stochastic frontier approach with municipality and time fixed effects for 2010-2016 modelling the decentralization effect with a continuous variable, taxation autonomy, which allows for accounting for the degree and evolution of fiscal decentralization over time. The empirical analysis provides convincing evidence that fiscal decentralization is positively associated with municipalities' efficiency, robust to inclusion into the model of a large set of control variables. This evidence lends support for policies aimed at making more closely aligned expenditure and revenue decision making.

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