Fiscal Decentralization and Economic Growth: Theory and Application

Göcen, Serdar and Bayhanay, Alp and Göktaş, Nilüfer (2017): Fiscal Decentralization and Economic Growth: Theory and Application.

Abstract

In this study, we examined the effect of fiscal decentralization on economic growth. In economics, tacit and dispersed knowledge, public choice school, and principal–agent approaches provide a theoretical framework for this relationship. This study used both theoretical and empirical approaches. First, the fiscal decentralization–growth relationship was theoretically investigated and then the OECD countries were analyzed using panel data for the period 1995–2012. As a result, we found that different decentralization measurement criteria and different empirical methods have different effects on growth

• Item Type: MPRA Paper
• Language: English
• Keywords: fiscal decentralization, economic growth
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O11 - Macroeconomic Analyses of Economic Development

References

Acemoglu, D. and Robinson, J. A. (2013), “Why Nations Fail: The Origins of Power, Prosperity and Poverty”, New York, Crown Publishers.

Akai, N. and Sakata, M. (2002), “Fiscal Decentralization Contributes to Economic Growth: Evidence from State-Level Cross-Section Data for the United States”, Journal of Urban Economics, 52, pp. 93-108.

Baskaran, T., Feld, L. P. and Schnellenbach, J. (2016), “Fiscal Federalism, Decentralization, and Economic Growth: A meta-Analysis”, Economic Inquiry, 54(3), pp. 1445-1463.

Brennan, G. and Buchanan, J. M. (1980), “The power to tax: Analytical foundations of a fiscal constitution”, Cambridge, Cambridge University Press.

Buser, W. (2011), “The Impact of Fiscal Decentralization on Economics Performance in High- Income OECD Nations: An Institutional Approach”, Public Choice, 149, pp. 31-48.

Gemmell, N., Kineller, R. and Sanz, I. (2013), “Fiscal Decentralization and Economic Growth: Spending Versus Revenue Decentralization”, Economic Inquiry, 51(4), pp. 1915-1931.

Hayek, F. A. (1948), “Economics and Knowledge”, in Individualism and Economic Order, Ed. F. A. Hayek, The University of Chicago Press, Chicago, pp. 33-56.

Klugman, J. (1994), “Decentralisation: A survey of literature from a human development perspective”, New York: United Nations Development Programme Occasional Paper 13 Human Development Report Office.

Lessmann, C. and Markwardt. G., (2012), “Aid, Growth and Devolution”, World Development, Vol 40, Issue 9, September 2012, pp. 1723-1749.

Ligthart, J. E. and Oudheusden, P. v. (2017), “The Fiscal Decentralisation and Economic Growth Nexus Revisited”, Fiscal Studies, 38(1), pp. 141-171.

Lozano, I. and Julio, J. M. (2016), “Fiscal Decentrralization and Economic Growth in Columbia: Evidence from Regional-Level Panel Data”, Cepal Review(119), pp. 65-82.

Martinez – Vazquez, J., Lago – Penas, S. and Sacchi, A. (2015), “The Impact of Fiscal Decentralization: A Survey, International Center for Public Policy, pp. 1-31.

North, D., (1990), “Institutions, Institutional Change and Economic Performance”, Cambridge University Press, New York.

Oates, W. E. (1972), “Fiscal Federalism”, Princeton University: Harcourt Brace Jovanovich Inc., New York.

Oates, W. E. (2005), “Towards a Second-Generation Theory of Fiscal Federalism”, Journal of International Tax and Public Finance 12:4, pp. 349-373.

Rodriguez-Pose, A. and Ezcurra, R., (2010), “Is Fiscal Decentralization Harmful for Economic Growth? Evidence from the OECD Countries”, Serc Discussion Paper 51, http://eprints.lse.ac.uk/33518/1/sercdp0051.pdf

Tiebout, C. M. (1956), “A pure theory of local expenditures”, Journal of Political Economy, Vol 64, pp. 416-424