Fiscal Decentralization and Economic Growth: Evidence from Spanish Regions

The degree of fiscal decentralization in Spain is similar to main federal countries and greater than unitary ones. The demand of public sector decentralization is based on a supposed efficiency gains that is far from being obvious. Using a data set for the Spanish regions, we reject the null hypothesis of a significant relationship between growth in per capita gross domestic product (GDP) and expenditure distribution among fiscal administrations. Nonetheless, we find empirical support for a relationship between revenue decentralization, far less advanced than the expenditure one, and growth. In both cases we do reject the null hypothesis of a nonlinear linkage between fiscal decentralization and growth in per capita GDP.     

Adjusting Fiscal Decentralization Programs to Improve Service Results in Bulgaria and Romania

Fiscal decentralization programs are works in progress, and expenditure roles often need to be adjusted to improve service delivery. The Balkan countries of Romania and Bulgaria, both needed for accession to the European Union in 2007, must demonstrate positive results from their fiscal decentralization programs in the social services area. Focusing on social service delivery, this paper explores how the design of fiscal decentralization programs, in the form of assigning intergovernmental expenditure roles and responsibilities, affects service performance. The authors conclude that fiscal decentralization requires the proper assignment of authority to match expenditure responsibilities and the policy and administrative capacity to carry them out.     

How gubernatorial budgetary power and interest groups affect vertical fiscal imbalances in the US states: Focusing on fiscal centralization and decentralization

This study empirically examines the roles of gubernatorial budgetary power and interest groups in vertical fiscal imbalances across US states via a two-step generalized method of moments estimation during a 22-year period (1987–2008). States' share of intergovernmental transfers and the local share of intergovernmental transfers are often affected by interaction between governors and interest groups, as are expenditure centralization and revenue/expenditure centralization. Revenue decentralization and the local share of intergovernmental transfers are frequently influenced by cooperation between governors and interest groups via mutual support. Long-term cooperation and gridlock each influence expenditure centralization, revenue/expenditure centralization, and revenue decentralization. Long-term cooperation is not statistically significant in terms of the state and local shares of intergovernmental transfers; that is, governors and interest groups cooperate in pursuit of short-term benefits rather than long-term results. Long-term political influence also has no impact, affirming a short-term-oriented political viewpoint.     

Decentralization as a constraint to Leviathan: a panel cointegration analysis

This paper extends the empirical literature about the effects of fiscal decentralization on the growth of government along three dimensions. It distinguishes between the effects of the level of decentralization from the way local governments finance their expenditures (common pool versus own resources); it uses a panel cointegration approach to separate the long run effects of decentralization from the short run dynamics; and it extends and revises the datasets generally used in these empirical analyses. The results show that the amount of revenue raised by sub-national governments leads to a long-term fall in the size of government but grants have the opposite effect. In addition, a greater decentralization of expenditure leads to greater overall spending. When the short-term is considered these influences work slowly, as the speed of adjustment towards the desired government size is relatively sluggish. In addition, in the short run, there is also a clear effect from the role of local revenue raising powers that stimulates the growth of government. These results appear robust to changes in the composition of the variables, countries and periods included the sample.     

Fiscal Decentralization,Flat Administrative Structure,and Local Government Size: Evidence and Lessons from China

This paper examines the effects of fiscal decentralization and flat administrative structure on local budget size and program outlays. We test three related theoretical hypotheses in China's adoption of province‐over‐county scheme of financial administration. We provide evidence that both decentralization of expenditure and decentralization of revenue increase the size of local budgets; that the impact of the former far outweighs that of the latter with local budgets on a rising trajectory; and that discretion grants localities more means to increase their budget. These results show that as China's reform deepens the proportion of local outlay on administration declines because of more local discretion from eliminating the prefecture bypass between the province and counties. But neither decentralization nor increased local discretion has allocated more local resources for education, and both contribute to increasing outlay on economic development. The paper formulates tentative policy recommendations that carry potential application for other countries. Copyright © 2016 John Wiley & Sons, Ltd.     

THE TYPOLOGY OF FISCAL DECENTRALISATION SYSTEM: A CLUSTER ANALYSIS APPROACH

The article suggests a novel theoretical framework for empirical measurement of fiscal decentralisation by taking the viewpoint that fiscal decentralisation should be regarded as a system. Then, we review in detail several institutional arrangements regarding fiscally decentralised systems including the following: federal versus unitary state, numbers of tiers of governments, taxing power, borrowing power and independence of local officials. After identifying these institutional arrangements, we can group different countries with similar institutionally fiscal decentralisation systems together in broad categories by using cluster analysis. This analysis reveals a typology of fiscally decentralised systems (FDS): high expenditure/revenue assignment FDS, low expenditure/revenue assignment FDS, revenue transfer FDS, most complete FDS, politically centralised FDS and unitary state FDS. We then employ regression analysis to examine the performance for each type of fiscal decentralisation system. Our empirical findings suggest that most complete FDS is positively associated with selective economic performance as well as various public governance indicators. Copyright © 2011 John Wiley & Sons, Ltd.     

On the link between fiscal decentralization and public debt in OECD countries

Excessive borrowing by subnational governments is considered to be one of the perils of fiscal decentralization. On the other hand, fiscal decentralization might ensure the fiscal stability of the public sector by constraining Leviathan governments. Since the impact of decentralized government on fiscal outcomes is therefore ambiguous from a theoretical perspective, we explore this question empirically with a panel of 17 OECD countries over the 1975–2001 period. Our findings suggest that expenditure decentralization significantly reduces public indebtedness, whereas tax decentralization and vertical fiscal imbalances are insignificant.     

The political economy of centralization and the European Community

Since 1972, the share of central government expenditure in total public expenditure has continued to increase in most industrial countries. In an international cross-section analysis, it has a significant positive effect on the share of government spending in GDP. The actors who have an interest in centralization are analyzed. The dynamics of centralization are attributed to a response asymmetry and two thresholds. “Popitz' law” of the attraction of the larger budget is tested with respect to the EC Commission: high-ranking politicians come mainly from the smaller member states. The voters' attitudes toward European unification are analyzed in a pooled regression. Ten years hence, 80% of our economic legislation, and perhaps even our fiscal and social legislation as well, will be of Community origin (Jacques Delors, Debates of the European Parliament, 6 July, 1988, No. 2-367/140).     

Fiscal decentralization and the size of government: a European country empirical analysis

This article is an original contribution to the understanding of the relationship between fiscal decentralization and government size. Using a panel data set of the EU-15 countries, we analyse the effect of decentralization on aggregate, national and subnational government sizes by separating the long run effects of decentralization from its short run dynamics. In the long run, tax autonomy reduces central expenditure but increases—and to a greater extent—subnational public expenditure, leading to higher aggregate public expenditure. We find also that vertical imbalances tend to increase the sizes of subnational, national and aggregate governments.     

中国地方财政稳定机制研究

传统财政理论认为,中央政府是稳定政策唯一合适的承担者,然而,Gramlich得出地方政府的财政政策至少在短期内是有效的结论,并提倡地方政府实施稳定的财政政策。本文利用1995—2008年中国30个省、市、自治区(西藏除外)的财政收支面板数据和GDP面板数据,运用固定效应模型和Prais-Winsten PCSE方法实证分析了地方财政收支行为与宏观经济波动的关系,得出在宏观经济处于繁荣阶段时,地方财政收支违反了"逆周期"操作规则,是"顺周期"的结论。认为,地方政府职能转变不到位,财政纪律松弛,财政约束缺失,以及《预算法》的缺陷是导致"顺周期"的原因。为此,本文最后提出了通过建立地方财政预算稳定基金和中期预算制度,修订预算法等相关措施来构建中国地方财政稳定机制的设想。     

Explaining Fiscal Balances with a Simultaneous Equation Model of Revenue and Expenditure: A Case Study of Swiss Cantons Using Panel Data

Empirical literature on the analysis of the efficiency of measures for reducing persistent government deficits has mainly focused on the direct explanation of deficit. By contrast, this paper aims at modeling government revenue and expenditure within a simultaneous framework and deriving the fiscal balance (surplus or deficit) equation as the difference between the two variables. This setting enables one to not only judge how relevant the explanatory variables are in explaining the fiscal balance but also understand their impact on revenue and/or expenditure. Our empirical results, obtained by using a panel data set on Swiss Cantons for the period 1980–2002, confirm the relevance of the approach followed here, by providing unambiguous evidence of a simultaneous relationship between revenue and expenditure. They also reveal strong dynamic components in revenue, expenditure, and fiscal balance. Among the significant determinants of public fiscal balance we not only find the usual business cycle elements, but also and more importantly institutional factors such as the number of administrative units, and the ease with which people can resort to political (direct democracy) instruments, such as public initiatives and referendum.     

Growth and the Welfare State in the EU: A Causality Analysis

In this paper, we test for causality between GDP growth andsocial protection expenditure in the European Union. To that end,we apply Hsiao's (1981) sequential procedure to data for twelveEU countries along the 1970–1994 period. Our results suggestthat, for Belgium, Germany, Ireland, Luxembourg, the Netherlands,Portugal, and Spain, causality runs only from social protectiongrowth to GDP growth, while for Denmark, France, Greece, Italy,and the United Kingdom, no causality is found between socialprotection growth and GDP growth.     

Fostering subnational autonomy and accountability in decentralized developing countries: lessons from the Papua New Guinea experience

Using the experience of Papua New Guinea as a case study, this article examines the importance of political and administrative organization, electoral politics and revenue assignments for fostering subnational autonomy and accountability in decentralized developing countries, and hence the success of fiscal decentralization programmes. Copyright © 2002 John Wiley & Sons, Ltd.     

Fiscal variables and growth: A cross-sectional analysis

This paper examines the impact of the key fiscal variables — taxes, expenditures, and deficits — on economic growth performance, using a reduced-form model and cross-sectional data for a sample of 76 developed and developing countries for the period 1972–81. Its simultaneous consideration of fiscal variables overturns the results of some existing studies. While taxes seem negatively associated with GDP growth, they are concommitant with a higher rate of growth when their benefits in terms of reducing deficits are taken into account. The positive association of government expenditures with GDP growth is rendered negative when their impact on deficits are factored in. Deficits are contractionary, and deficit-reducing tax increases and expenditure cuts are positively associated with growth. A balanced budget expansion of taxes and expenditures is negatively associated with growth. When separating the sample into low-, middle- and high-income countries, these results hold only for the second group indicating that the level of development influences the linkages between fiscal variables and GDP growth.The views expressed herein are those of the authors and should not be attributed to the World Bank or its affiliated organizations.     

The centralization vs decentralization tug of war and the emerging narrative of fiscal federalism for social policy in India

ABSTRACT

This paper examines the relationship between fiscal federalism and social policy in India through an analysis of the effects of a recent effort to increase fiscal decentralization to state governments on the nature of social policy investment at the sub-national level. Through its analysis, this paper highlights the persistence of a strong centralisation bias in India’s fiscal architecture for social policy. We trace this centralisation bias to the political and administrative dynamics of the federal bargain. The peculiar dynamics of this bargain have created a context where the core goal of centralization – to ensure equity – is undermined while the expectation of decentralization – greater accountability through alignment of expenditure with local needs and preferences, fails to take root. India is thus likely to continue to witness significant regional variation in social policy outcomes, despite a centralised financing architecture.     

经济开放对地方财政收入规模及结构的影响实证分析

使用中国1999—2007年度省级面板数据,实证分析了经济开放对地方财政收入规模和内部相对结构变化的作用。研究表明:贸易开放度的提高显著增加了地方个人所得税、行为税、财产税和非税收入,整体上也引起地方财政总收入的增加;并使地方财政收入中个人所得税、财产税和非税收入比重上升,城建税收入比重下降。投资开放的提升显著增加了地方营业税、个人所得税、行为税、非税及预算外收入,同时减少了地方增值税和企业所得税收入,总体上对地方财政收入有负效应;并提高了地方财政收入中营业税、个人所得税、行为税、财产税、非税收入及预算外收入的比重。由于外资和外贸对经济及税基的作用差异、现行分税制、地方各项财政收入自身特征、地方政府基于多元目标为促进外资投资呈现出的策略行为等,使经济开放对地方各项财政收入规模及其相对结构的影响具有复杂和非一致性。     

The Case Against Balanced Budgets

A proposal by the Fahey government in late 1994 to amend the NSW state Constitution so as to require 'balanced' budgets is one of a number of signs which suggest that the simple notion that total government expenditure should not exceed total tax revenue has gained real influence in Australia, particularly at the state level. This article explains why fiscal responsibility does not require overall budget balance. A balanced budget requirement of this type is not appropriate even if one were to make allowances for recession-induced ('cyclical') deficits, and to seek to ban only 'structural' deficits. The reason for this is there are inherent irregularities in capital expenditure, and only through varying debt levels is it possible to reconcile reasonable stability of tax levels with stable levels of provision of public services (including services from public capital infrastructure).     

Do housing bubbles generate fiscal bubbles?

This paper examines the effects of the most recent U.S. housing bubble on the fiscal policy of California cities. We use an instrumental variables approach that helps isolate the fiscal consequences of house price appreciation by taking advantage of the influence of local topological constraints on the elasticity of house prices with respect to interest rates. Our analysis generates three main findings. First, despite Prop 13 fiscal constraints, rapid house price appreciation has a strong effect on property tax revenue. Second, the resulting increase in property tax revenue was largely offset by a reduction in other local tax revenue. This offsetting response leaves total city expenditure unrelated to local house prices. In that sense the housing bubble did not produce local fiscal bubbles. Third, we find that fiscal adjustments to house price appreciation depend on local political institutions.     

Fiscal institutions of Brazilian municipal borrowing

In an effort to understand subnational borrowing, this article explores how three Brazilian institutions—the 1988 Constitution which mandates revenue and expenditure assignments among the levels of the federation; the national Law of Fiscal Responsibility, which imposes expenditure and debt limitations on all levels and branches of government; and various borrowing arrangements—affect the municipal borrowing environment. These institutions are examined in light of de Mello's (2001) policy recommendations for strengthening efficiency and fiscal discipline in subnational borrowing. The institutions of Brazilian borrowing were found to have some of de Mello's recommendations, with the new Constitution and the Law of Fiscal Responsibility making progress towards increased fiscal responsibility, but the current borrowing arrangements serving to maintain a controlled system that is not conducive to responsible municipal borrowing. Several recommendations are made to improve the borrowing environment and foster fiscal discipline and efficiency Copyright © 2008 John Wiley & Sons, Ltd.     

Political Support for Decentralization: An Analysis of the Colombian and Venezuelan Legislatures

A worldwide trend of decentralizing political power, fiscal authority, and the responsibility for providing services to subnational governments has been especially evident in Latin America over the past decade. This article focuses on variation in intracountry support for decentralization, using data on bill initiation from Colombia and Venezuela to determine the domestic sources of this policy. While the data support prior findings that decentralization is supported by parties whose future electoral prospects are better at the subnational level, the analysis also shows that citizen's trust in government and greater wealth affect a deputies' support for decentralization .