Introduction the chinese economy has grown at a recordsetting rate of about 10% annually, since the launching of the economic reforms in 1978. Fiscal decentralization may indeed have a direct impact on economic growth but the theoretical underpinnings for this relationship remain largely undeveloped. Impact of fiscal decentralization on economic growth in. Identifying and disentangling the impact of fiscal. In contrast, davoodi and zou 1998 found a negative relationship between fiscal decentralization and economic growth in developing nations, but no relationship in developed nations. Using a novel empirical approach, the analysis suggests that decentralisation tends to be supportive of economic growth. A metaanalysis approach 36 will ensure efficiency in the system, which will, in turn, reduce the role of the central government. Section 2 provides a tractable theoretical and empirical framework linking fiscal decentralization to growth, and characterizes parameters that measure the efficiency gains from fiscal decentralization. Fiscal decentralization enables each local government to design and implement a local pro growth development program to level the development gap between regions and may counterbalance the detrimental effect of fiscal decentralization on income inequality. Xie d, zou h, davoodi h 1999 fiscal decentralization and economic growth in the united states. Identifying and disentangling the impact of fiscal decentralization. The effect of fiscal decentralization on economic growth. In economics, tacit and dispersed knowledge, public choice school, and principalagent approaches provide a theoretical framework for this relationship. While initial estimations suggest that fiscal decentralization causes lower growth rates, we find that this result is not robust to alternative specifications.
Fiscal decentralization is a complicated phenomenon with many dimensions. In the last two decades there has been a worldwide interest in decentralization of government in all parts of the world. Fiscal federalism, decentralization and economic growth. This paper explores the impact of fiscal decentralization on the efficiency of public service delivery. An analysis of the effect of fiscal decentralisation on. Oecd ilibrary fiscal decentralisation and economic growth. Keywords fiscal decentralization, economic growth, dols, india. Description fiscal decentralization database is a panel of data on indices of fiscal decentralization every ten years from 1975, 1985, and 1995 for about 100 countries. The empirical analysis was based on the multiple regression method. A vast empirical literature has followed over the last decades with the goal of determining the actual effects of decentralization on economic growth. There is no consensus among economists about the definition and measurement of fd. A theoretical approach it is possible to divide the literature into two streams in terms of the impact of fd on economic growth oates, 2005.
This article examines whether the efficiency gains accompanying fiscal decentralization generate higher growth in more decentralized economies, applying pooled. Concept of fiscal decentralization and worldwide overview english abstract. Fiscal decentralization over the past few years remains as a central agenda when it comes to regional development around the world and economic growth. Section 2 provides a tractable theoretical and empirical framework linking fiscal decentralization to growth, and characterizes parameters that mea. Decentralisation of tax revenues tends to have a stronger impact than spending decentralisation, especially when government is small. The positive results are somewhat attributed to the inclusion of historical and cultural factors. Two interrelated issues should be mentioned while investigating fiscal decentralization. Fiscal decentralization, public spending, and economic growth in china english abstract. Fiscal decentralization and economic growth in oecd countries. Impacts of fiscal decentralization and economic growth. The effect of fiscal decentralisation on education expenditure to gdp. Our findings suggest that government organization matters for local.
Fiscal decentralization, public spending, and economic growth. The relation between fiscal decentralisation and economic growth would therefore not be linear but bellshaped, in that an increase in the degree of fiscal decentralisation would first promote economic growth until an optimum had been reached, when a further increase would hamper growth. Spending versus revenue decentralization norman gemmell, richard kneller and ismael sanz. Fiscal decentralization, economic growth, and democratic. The paper analyses the fiscal decentralization effects on economic growth in unitary countries of european union for the period 20052014.
Fiscal decentralization, fiscal reform, and economic. Fiscal decentralization and economic growth in the united states. As emphasized by bird 2000, however, measurement is surprisingly difficult. However, decentralization may also increase growth by raising the ability of the political system to. Fiscal decentralization and economic growth sciencedirect. Firstgeneration explanations were developed by oates 1972 and tiebout 1956. Zhang and zou 2001 examined the relationship between fiscal decentralization and economic growth based on the panel data from 1970 to 1994 for 16 major indian states. The authors of this report use data on china to demonstrate how the allocation of fiscal revenue and expenditures between central and local governments has affected economic growth since reforms that began in the late 1970s.
A birds eye view of fiscal decentralisation chapter 2. Bychangingthecompositionofpublic investment toward the most productive, fd may therefore enhance economic growth. With effective management of resources at the local level, communal needs are easily attended to and the community issues can be solved effectively. Impact of fiscal decentralization on economic growth in the.
Much of the traditional literature focuses on the efficiency aspects of a decentralized provision of public services. On the measurement and impact of fiscal decentralization. Pdf fiscal decentralization may indeed have a direct impact on economic growth but the theoretical underpinnings for this relationship. Introduction fiscal federalism, under which provision of public goods is decentralized to subnational governments, allows public consumption levels to be tailored to suit the preferences of a heterogeneous population. This study used both theoretical and empirical approaches. The pursuit of decentralization is widespread, as both developed and developing countries attempt to challenge central governments.
Fiscal decentralization and economic growth in the united. Introduction fiscal decentralization fd has become increasingly popular due to its importance for many countries. If you have a user account, you will need to reset your password the next time you login. The theoretical literature on the economics of fiscal federalism has identified several potential effects of government decentralization on economic growth. Fiscal decentralization and economic growth article pdf available in world development february 2001 with 163 reads how we measure reads. The country has made important first steps in the decentralization process, but as yet. Pdf on jul 12, 2018, hansjorg blochliger and others published fiscal decentralisation and economic growth find, read and cite all the research you need on. The authors of this report use data on china to demonstrate how the allocation of fiscal revenue and expenditures between central and local governments has affected economic growth since reforms that began in. Existing empirical studies of the growth consequences of tss reform have two primary challenges, measuring fiscal decentralization and causal identification. Fiscal decentralization and economic growth in china. The study finds that fiscal decentralization has made a significant contribution to economic growth, which is consistent with fiscal decentralization hypothesis. More on decentralization and economic growth dialnet. Akai and sakata 2002 using new panel data set for the usa covering 1992 to 1996 period find a positive relationship between fiscal decentralization and economic growth. Fiscal decentralization, public spending, and economic.
We study the relationship between fiscal decentralization and economic growth for 23 oecd countries from 1975 to 2001 by using new panel data on subfederal tax autonomy. This chapter deals with the relationship between fiscal decentralisation and economic growth. Fiscal decentralization in a for the asia foundation. Fiscal decentralization, fiscal reform, and economic growth.
Equalization transfers, fiscal decentralization, and economic growth. This article examines whether this is the case, by analysing the relationship between decentralization and economic growth in 21 organization for economic cooperation and development countries during the period between 1990 and 2005 and controlling not only for fiscal decentralization, but also for political and administrative decentralization. It uses a stochastic frontier method to estimate timevarying efficiency coefficients. Fiscal decentralization and economic growth in colombia. In this study, the relationship between fd and economic growth will be evaluated first in a theoretical way.
The third section analyzes empirical applications of decentralization and growth. It is a nonmonotonic relation, with positive effects to a certain optimum level 3. Fiscal decentralization and politicalinstitutional environments subgroups 15 7. Fiscal decentralisation and economic growth in rich oecd. A quick scholarly search reveals over 60 published works on the impact of fiscal decentralization on various.
Hikaru ogawa school of economics, nagoya university. In the literature, local government expenditure, income, and tax revenue are utilized for the. Fiscal decentralization and the efficiency of public. Fiscal decentralization forms the backbone of myanmars efforts to strengthen public services, encourage development across the country, and secure peace and stability. This paper provides evidence for the positive effects of fiscal decentralization on regional economic growth in colombia since the enactment of the political. First, the fiscal decentralizationgrowth relationship was theoretically investigated and then. Fiscal decentralization and economic growth article pdf available in world development 319.
The overall aim of this paper, therefore, is to explore the impact of fiscal decentralization on. Fiscal decentralization and the efficiency of public service. Finally, ding 2008 focuses on the tss period of 19942002 and finds a positive association between province level economic growth and various measures of fiscal decentralization. Pdf on jul 12, 2018, hansjorg blochliger and others published fiscal decentralisation and economic growth find, read and cite all the research you need on researchgate. Justin yifu lin and zhiqiang liu, fiscal decentralization and. Fiscal decentralization, regional income inequality, and. The absence of an adequate theoretical framework has undermined the validity of. This paper entails both positive and negative effects of fiscal decentralization on economic growth. Equalization transfers, fiscal decentralization, and. Pdf fiscal decentralisation and economic growth researchgate. The main issues of concern regarding fiscal decentralization and economic growth are tax jurisdictions, expenditure responsibilities and resource allocation. Is fiscal decentralization harmful for economic growth. Fiscal decentralization and economic growth in oecd. This paper revisits the relationship between fiscal decentralization and economic growth by addressing the endogeneity issue stemming from reverse causality.
Fiscal decentralization and economic growth munich personal. Devkota1 phd local bodies fiscal commission, nepal abstract this paper focuses on the evolving pattern of fiscal decentralization and its impact on the growth of per capita gdp of the districts in nepal. Fiscal decentralization and economic growth in the united states danyang xie hong kong university of science and technology, hong kong hengfu zou institute for advanced studies, wuhan university, china and development research group, world bank, washington, dc 20433 and hamid davoodi international monetary fund, washington, dc 20431. Fiscal decentralization and economic growth in selected. Counties we analyze the impact of fiscal decentralization on u. Fiscal decentralization and economic growth in china justin yifu lin peking university and hong kong university of science and technology zhiqiang liu state university of new york at buffalo i. In this study, we examined the effect of fiscal decentralization on economic growth. The impact of local decentralization on economic growth. Concept of fiscal decentralization and worldwide overview. The main variables, fiscal decentralization indices, are constructed using imfs gfs database and publications. One argument for the causality from fiscal decentralization to economic growth is the decentralization theorem by oates 1972. Fiscal decentralization and economic growth in central and.
Pdf fiscal decentralization and economic growth researchgate. Justin yifu lin and zhiqiang liu, fiscal decentralization and economic growth in china, economic development and cultural change 49, no. The fourth section replicates hammond and tosun 2012 using canadian data. The majority of the literature on fiscal decentralization has tended to stress that the greater capacity of decentralized governments to tailor policies to local preferences and to be innovative in the provision of policies and public services, the greater the potential for economic efficiency and growth. Sayaka yakita school of economics, nagoya university. Fiscal decentralisation and inclusive growth oecd fiscal federalism studies fiscal federalism 2016 making decentralisation work contents executive summary chapter 1. Fiscal decentralization and public expenditure efficiency. Fiscal decentralization and federalism data catalog. Pdf fiscal decentralization and economic growth in china. Fiscal decentralization and economic growth in central and eastern europe, growth and change, wiley blackwell, vol. Impact of fiscal decentralization on economic growth in the districts of nepal k. On the measurement and impact of fiscal decentralization 4 international monetary fund as the basis for measuring decentralization.
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