This study used both theoretical and empirical approaches. However, decentralization may also increase growth by raising the ability of the political system to. Fiscal decentralization is a complicated phenomenon with many dimensions. 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. Fiscal decentralization and economic growth in central and. Using a novel empirical approach, the analysis suggests that decentralisation tends to be supportive of economic growth. Fiscal decentralization, regional income inequality, and. 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. The main issues of concern regarding fiscal decentralization and economic growth are tax jurisdictions, expenditure responsibilities and resource allocation. Fiscal decentralization in a for the asia foundation. An analysis of the effect of fiscal decentralisation on. Concept of fiscal decentralization and worldwide overview english abstract. The effect of fiscal decentralisation on education expenditure to gdp. Fiscal decentralization and economic growth in the united states.
Firstgeneration explanations were developed by oates 1972 and tiebout 1956. Fiscal decentralization, fiscal reform, and economic. Fiscal decentralization and politicalinstitutional environments subgroups 15 7. Fiscal decentralization and federalism data catalog. The country has made important first steps in the decentralization process, but as yet. Fiscal decentralization and economic growth munich personal.
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. Our findings suggest that government organization matters for local. Introduction the chinese economy has grown at a recordsetting rate of about 10% annually, since the launching of the economic reforms in 1978. Fiscal decentralisation and inclusive growth oecd fiscal federalism studies fiscal federalism 2016 making decentralisation work contents executive summary chapter 1. Fiscal decentralization and economic growth article pdf available in world development february 2001 with 163 reads how we measure reads. In the literature, local government expenditure, income, and tax revenue are utilized for the. Justin yifu lin and zhiqiang liu, fiscal decentralization and. In this study, the relationship between fd and economic growth will be evaluated first in a theoretical way.
Equalization transfers, fiscal decentralization, and. In the last two decades there has been a worldwide interest in decentralization of government in all parts of the world. Identifying and disentangling the impact of fiscal. One argument for the causality from fiscal decentralization to economic growth is the decentralization theorem by oates 1972. Fiscal decentralization and economic growth in oecd. 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. The impact of local decentralization on economic growth. Concept of fiscal decentralization and worldwide overview. Sayaka yakita school of economics, nagoya university. Pdf fiscal decentralization may indeed have a direct impact on economic growth but the theoretical underpinnings for this relationship. Fiscal decentralization, public spending, and economic growth in china english abstract. A birds eye view of fiscal decentralisation chapter 2. The pursuit of decentralization is widespread, as both developed and developing countries attempt to challenge central governments.
The positive results are somewhat attributed to the inclusion of historical and cultural factors. 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. It uses a stochastic frontier method to estimate timevarying efficiency coefficients. Keywords fiscal decentralization, economic growth, dols, india. Identifying and disentangling the impact of fiscal decentralization. It is a nonmonotonic relation, with positive effects to a certain optimum level 3.
Is fiscal decentralization harmful for economic growth. 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. This paper explores the impact of fiscal decentralization on the efficiency of public service delivery. A metaanalysis approach 36 will ensure efficiency in the system, which will, in turn, reduce the role of the central government. There is no consensus among economists about the definition and measurement of fd. Fiscal decentralization forms the backbone of myanmars efforts to strengthen public services, encourage development across the country, and secure peace and stability. First, the fiscal decentralizationgrowth relationship was theoretically investigated and then. Pdf fiscal decentralization and economic growth researchgate. On the measurement and impact of fiscal decentralization 4 international monetary fund as the basis for measuring decentralization.
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. Fiscal decentralization may indeed have a direct impact on economic growth but the theoretical underpinnings for this relationship remain largely undeveloped. If you have a user account, you will need to reset your password the next time you login. Counties we analyze the impact of fiscal decentralization on u.
The fourth section replicates hammond and tosun 2012 using canadian data. Impact of fiscal decentralization on economic growth in the. Fiscal decentralization and economic growth in china. Two interrelated issues should be mentioned while investigating fiscal decentralization. Fiscal decentralization and economic growth sciencedirect. 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. The study finds that fiscal decentralization has made a significant contribution to economic growth, which is consistent with fiscal decentralization hypothesis.
This chapter deals with the relationship between fiscal decentralisation and economic growth. 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. The overall aim of this paper, therefore, is to explore the impact of fiscal decentralization on. Fiscal federalism, decentralization and economic growth. Fiscal decentralization and economic growth in colombia. Oecd ilibrary fiscal decentralisation and economic growth. Fiscal decentralisation and economic growth in rich oecd. 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. The paper analyses the fiscal decentralization effects on economic growth in unitary countries of european union for the period 20052014. 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. 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. 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 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. 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. The main variables, fiscal decentralization indices, are constructed using imfs gfs database and publications. A vast empirical literature has followed over the last decades with the goal of determining the actual effects of decentralization on economic growth.
On the measurement and impact of fiscal decentralization. Fiscal decentralization and the efficiency of public service. Hikaru ogawa school of economics, nagoya university. Impacts of fiscal decentralization and economic growth. Fiscal decentralization, fiscal reform, and economic growth. 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. Introduction fiscal decentralization fd has become increasingly popular due to its importance for many countries.
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. Fiscal decentralization and economic growth in selected. Existing empirical studies of the growth consequences of tss reform have two primary challenges, measuring fiscal decentralization and causal identification. Fiscal decentralization over the past few years remains as a central agenda when it comes to regional development around the world and economic growth. Bychangingthecompositionofpublic investment toward the most productive, fd may therefore enhance economic growth. A quick scholarly search reveals over 60 published works on the impact of fiscal decentralization on various. More on decentralization and economic growth dialnet.
In economics, tacit and dispersed knowledge, public choice school, and principalagent approaches provide a theoretical framework for this relationship. Justin yifu lin and zhiqiang liu, fiscal decentralization and economic growth in china, economic development and cultural change 49, no. Decentralisation of tax revenues tends to have a stronger impact than spending decentralisation, especially when government is small. Impact of fiscal decentralization on economic growth in.
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 in central and eastern europe, growth and change, wiley blackwell, vol. This paper entails both positive and negative effects of fiscal decentralization on 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.
Fiscal decentralization and economic growth in the united. This paper provides evidence for the positive effects of fiscal decentralization on regional economic growth in colombia since the enactment of the political. The third section analyzes empirical applications of decentralization and growth. Spending versus revenue decentralization norman gemmell, richard kneller and ismael sanz. The empirical analysis was based on the multiple regression method. Impact of fiscal decentralization on economic growth in the districts of nepal k. Fiscal decentralization and economic growth in oecd countries. The effect of fiscal decentralization on economic growth. 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. Pdf fiscal decentralization and economic growth in china. 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. While initial estimations suggest that fiscal decentralization causes lower growth rates, we find that this result is not robust to alternative specifications. Xie d, zou h, davoodi h 1999 fiscal decentralization and economic growth in the united states. Fiscal decentralization and the efficiency of public.
Much of the traditional literature focuses on the efficiency aspects of a decentralized provision of public services. Equalization transfers, fiscal decentralization, and economic growth. The absence of an adequate theoretical framework has undermined the validity of. As emphasized by bird 2000, however, measurement is surprisingly difficult.
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. Fiscal decentralization and economic growth article pdf available in world development 319. 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 article examines whether the efficiency gains accompanying fiscal decentralization generate higher growth in more decentralized economies, applying pooled. Pdf fiscal decentralisation and economic growth researchgate. Fiscal decentralization and public expenditure efficiency.
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