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The asymmetric nature of fiscal decentralization: theory and practice

Sacchi, Agnese and Salotti, Simone (2014): The asymmetric nature of fiscal decentralization: theory and practice.

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Abstract

A relevant mismatch between tax and expenditure decentralization characterizes many industrialized countries. The former is usually less pronounced than the latter, resulting in asymmetric fiscal decentralization arrangements. After a brief discussion of the stylized facts in advanced countries, we investigate the nature of this asymmetry using a theoretical framework that explains why it is difficult to tackle it, despite a consensus on the benefits of a well-balanced decentralization process. We find that asymmetry is intrinsic to fiscal decentralization, even in a scenario where clear advantages from well-developed fiscally decentralized systems arise. This implies that both empirical and theoretical contributions would benefit by taking into account the welfare-reducing asymmetric nature of fiscal decentralization.

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