Fiscal Decentralization

Tests for the presence of Leviathan, evidenced by a positive relationship between the size of government measured as a percentage of GDP, and the degree of fiscal centralization, have provided mixed results. We derive alternative measures of the size of government taking into account household and informal market activity. Traditional Leviathan models are then re-estimated for an international sample of forty-five countries. Controlling for income, population, intergovernmental grants, and urbanization we test whether fiscal centralization is responsible for the relative size of government. We find no evidence of a relationship between fiscal centralization and government size.

This paper provides a systematic analysis of fiscal decentralization on the quality of government by studying jointly its effects on electoral discipline and selection, in a setting where, realistically, voters only have limited information about fiscal policy in other jurisdictions, ruling out yardstick competition. Fiscal centralization reduces the extent of electoral discipline, as a corrupt (rent-seeking) incumbent can target good

A Two-way Causality Between Local Government Tax Revenue and Economic Growth Variables on the Basis of Fiscal Decentralization and Fiscal Equalization: Some Fiscal Autonomy Analyses for the Selected OECD Countries

This study examines the existence and direction of the panel causality between different fiscal decentralization and economic growth variables. The well-known theoretical and empirical literature has assumed that the fiscal decentralization process somehow causes economic growth, but has mostly ignored the possibility of economic growth can cause and change the decentralization levels as well. With its different point of interest, methodology and samples; the study applies the Bootstrap Panel Granger Causality Test to the data from 18 countries between 1991-2015 and finds that both fiscal decentralization and economic growth causes each other in different countries with relatively significant levels. According to the results, the tested variables of fiscal decentralization cause GDP and GDP per capita growth in Canada, France and Japan while in Hungary, Poland and Australia "vice versa" effect happens. Further to that, some fiscal policy assessments are also done as a conclusion for the countries (like Turkey) which fiscal decentralization has no or less effect in either way.

The paper describes and assesses intergovernmental fiscal relations in Indonesia and outlines options for reform. The discussion encompasses issues in all major aspects of fiscal relations between the national and subnational governments: expenditure assignment; tax assignment; intergovernmental transfers; reform of subnational taxes and user charges; subnational government borrowing; the framework for planning, budgeting and implementation; and development of subnational government institutional capacities. The focus is on systemic issues of reform. The paper's objective is to present an analytical framework to guide the reform of the intergovernmental fiscal system, and, using that framework, sketch out a broad agenda for fiscal decentralization and development of subnational government financial and institutional capacities. The paper does not seek to develop detailed recommendations for decentralization for individual sectors or public services.

Abstract. There is no complete overview or discussion of the literature of the economics of federalism and fiscal decentralization, even though scholarly interest in the topic has been increasing significantly over recent years. This paper provides a general, brief but comprehensive overview of the main insights from the literature on fiscal federalism and decentralization. In doing so, literature on fiscal federalism

This article argues that fiscal decentralization hinged on unconditional central to local transfers, as
in the case of the Philippines, induces overreliance on central government support and defeats
the principle of fiscal autonomy. Examining Philippine fiscal and electoral data from 1992 to 2016,
two empirical observations are made. First, unconditional transfers in the form of internal revenue
allotments (IRA) crowd out local revenue generation and creates fiscal dependency among local
government units. Second, local government units that rely less on IRA not only tend to be more
active in raising their own income sources but also tend to allocate more for public welfare. As an
implication, the findings suggest that federalism as a mode of decentralization will not necessarily
create a more efficient and equitable system of fiscal governance if its institution is abrupt and if it
does not take into account the coordination of subsidiary units as direct stakeholders.