Interstate Spillovers,Fiscal Decentralization,and Public Spending on Medicaid Home‐ and Community‐Based Services

This article examines the interstate spillover effect of Medicaid expenditures for home‐ and community‐based services (HCBS) and tests the relationship between fiscal decentralization and public spending. Based on the theory of interstate strategic interaction, an empirical model is specified that explicitly accounts for interdependence in states’ spending decisions. The model is estimated by applying spatial econometric methods to panel data for the 50 U.S. states for 2000–2010. Findings show a positive interdependence in state HCBS expenditures that is contingent on similarity in citizen ideology between states. Fiscal decentralization, measured by transfer dependence and revenue autonomy, is positively related to Medicaid HCBS spending.     

Federalism and regional interest intermediation in Brazilian public policies

Brazil became a highly decentralized country following democratization and the 1988 Constitution. The consequences of decentralization at the federal level are quite clear: the federal government is facing financial constraints and difficulties in building governing coalitions, allowing the Presidents to govern and to implement public policies, especially those concerning fiscal control. At the level of the states, however, the results of decentralization are quite heterogeneous given the country's high degree of regional inequality. The article identifies the cleavages and tensions surrounding federal–state relations, as well as the mutual dependency of the states and the federal government. It argues that the Brazilian experience of political and financial decentralization has contributed to the prospects of democratic consolidation and has forced the federal government to negotiate and compromise with subnational governments the implementation of national policies. On the other hand, the Brazilian experience highlights the constraints of decentralization in countries with deep‐rooted regional disparities. Furthermore, the financial weakness of the federal government which has been brought about by decentralization and by fiscal control brings new tensions to the federal arrangements and to public policies. Copyright © 1999 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.     

Does legislative turnover adversely affect state expenditure policy? Evidence from Indian state elections

The effect of legislative turnover on the size and composition of government expenditures in Indian states over the 1980?C2000 period is examined. The paper finds that excessive turnover in Indian state elections results in inefficient government expenditure policy. First, the higher the turnover, the larger the government size. Second, excessive turnover affects the allocative efficiency of government expenditures by skewing the composition of government spending toward pure consumption and away from more productive investment expenditures. Third, the effect of turnover on fiscal policy is not linear; public consumption expenditure is convex in turnover, while public investment expenditure is concave in turnover.     

Decentralization and Fiscal Discipline in Sub-national Governments: Evidence from the Swiss Federal System

This article analyses the relationship between decentralizationand the extent of fiscal discipline in the Swiss cantons between1984 and 2000. From a theoretical point of view, decentralizationand federalism can be associated with both an expansive anda dampening effect on government debt. On the one hand, decentralizedstructures have been argued to lead to a reduction of debt dueto inherent competition between the member states and the multitudeof veto positions which restrict public intervention. On theother hand, decentralization has been claimed to contributeto an increase of public debt as it involves expensive functionaland organizational duplications as well as cost-intensive, oftendebt-financed, compromise solutions between a large number ofactors that operate in an uncoordinated and contradictory way.Our empirical results show that in periods of prosperous economicdevelopment, the architecture of state structure has no impacton debt. However, the degree of decentralization influencesdebt in economically poor times: In phases of economic recession,administratively decentralized cantons implement a more economicalbudgetary policy than centralized Swiss member states.     

The cartelization of local governments

Intergovernmental competition can enhance efficiency. Centralization of government expenditures inhibits intergovernmental competition because it makes governments more homogeneous, and so cartelizes local governments. Cartelization reduces Tiebout competition, and limits benchmark competition in which one government??s performance can be compared with neighboring governments. Measuring fiscal centralization as the ratio of local to state and local government expenditures within the state, the evidence shows that more fiscal decentralization is associated with higher levels of state per capita income. Cartelization of local governments negatively impacts income.     

The fiscal effects of statehood: New Mexico and Arizona, 1903–1919

The residents of US territories often vote against statehood for fear government will use its greater sovereignty to impose a heavier tax burden. On the other hand, public choice theory predicts that fiscal decentralization limits government’s size. The financial reports of New Mexico and Arizona were examined before and after statehood in 1912. Graphical and regression analyses of the ratios of receipts and expenditures to property values and US GNP suggest that the relative price of government rose far more in the two new states than in a control state, Nevada, thus supporting the claims of statehood’s opponents.     

New Hampshire's tax-base limits: An example of the Leviathan model

This study views the lack of an income tax on wages and salaries and a general sales tax in New Hampshire as tax-base limits. I use the Leviathan model to analyze the differences between the fiscal system in New Hampshire and the fiscal systems in Vermont, Maine, and Massachusetts. Vermont, Maine, and Massachusetts do not have the tax-base limits that New Hampshire has. From 1957 to 1989, New Hampshire had lower state and local government tax and expenditure levels than the other three states, more rapid population growth, lower welfare expenditures but comparable levels of expenditures for several of the major public services, and a more competitive structure of state and local government.     

Decentralization and Development in Contemporary Uganda

Abstract

There has long been an emphasis on the importance of decentralization in providing better quality public services in the developing world. In order to assess the effectiveness of decentralization I examine here the case study of Uganda, which has seen major decentralization of power over the last quarter-century. In particular the current government has introduced a five-tiered local government structure, decentralized both fiscal and political power to local governments and introduced regular local government elections. However, initial excitement about Uganda's decentralization programme has tapered off in recent years due to a number of problems outlined here. In particular, I show that decentralization in Uganda has suffered from a lack of independence from central government control, which has led to a lack of effectiveness in the provision of high quality public goods.     

Decentralization in Kerala: Panchayat government discretion and accountability

Kerala is regarded as one of the most decentralized states in India. Through a ‘big bang’ approach, Kerala implemented a significant fiscal decentralization program and then built the capacity of its local governments. We employ a diagnostic framework to analyze its local government discretion and accountability in political, administrative and fiscal domains. We find that Kerala's local governments have a very high degree of discretionary power accompanied by a high degree of accountability towards citizens. But the areas of administrative accountability and financial management need to be strengthened. Also there may have been excessive focus and investment on social accountability mechanisms at the cost of local government discretion and formal public sector accountability mechanisms. Copyright © 2009 John Wiley & Sons, Ltd.     

Decentralization,Local Government,and the Welfare State

Despite growing interest in decentralized governance, the local government systems that comprise the most common element of decentralization around the world have received little systematic attention. This article, drawing on the first systematic index of decentralization to local government in 21 countries, demonstrates a close relation between Social Democratic welfare states and an intergovernmental infrastructure that in important respects ranks as the most decentralized among advanced industrial countries. This empowerment of local government in these countries was less an outgrowth of Social Democratic welfare state development than a preexisting condition that helped make this type of welfare state possible.     

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.     

Tax decentralization and local government size

This paper investigates the relationship between fiscal federalism and the sizes of local governments. While many empirical studies emphasized that grants encourage the growth of local public spending and local taxes constrain it, they are more silent regarding the effects of different types of tax autonomy. The paper addresses this issue by arguing that tax decentralization as organized on tax bases used only by local governments (tax-separation), rather than on tax-base sharing, would restrain local public expenditures. Using an unbalanced panel of OECD countries, the key finding is that only property taxes—mostly based on a “tax-separation” scheme—seem to favor smaller local governments. Thus, while tax decentralization is a necessary condition for limiting the growth of local governments, it does not appear sufficient, as tax-separation schemes among government levels would in fact be required.     

Fiscal decentralization and natural hazard risks

At least to some extent due to pressure from international donors, many countries have become more fiscally decentralized the underlying premise being that greater decentralization might improve the provision of local public goods and services. We test this proposition by determining whether relatively more decentralized countries fare better when natural disasters strike in terms of its effects on the population. Overall, we find evidence supporting our maintained hypothesis, though the effect appears much more robust in developing countries.     

The cost disease and government growth: Qualifications to Baumol

Changes in real world wage movements across sectors account for about a third of the rise in the cost of U.S. government services between 1959 and 1989, while relatively slower productivity in the public sector accounts for the remaining two-thirds. Even though it is slower, however, the productivity record still is positive even in the labor intensive government sector. Consequently Baumol argues that the public's likely future objection to necessary increases in the share of expenditures over the next 50 years will betray a fiscal illusion unless policymakers take pains to dissolve it. But slower productivity may be equally due to the structural organization. Removing public monopolies, reducing bureaucracies, and undertaking privatization in education for example, are other policy options that could radically change the productivity record. Meanwhile in his recent calculations of dramatic government expenditure increases expected in the next half century, Baumol omits reference to the marginal welfare cost of public funds, which on our estimates, will increase at least ten times to reach 1.71 by the year 2040.     

Intergovernmental Fiscal Relations: Coordination Failures and Fiscal Outcomes

This article estimates the fiscal impact of coordination failures in intergovernmental fiscal relations. The coordination failures considered here are due to agency problems arising from the delegation of fiscal powers to sub-national governments, and "common pool" problems associated with funding decentralised government spending through intergovernmental transfers. Particular attention is focused on the trade-off between coordination and fiscal decentralisation. Evidence provided for a sample of thirty countries suggests that coordination failures are likely to result in a deficit bias in decentralized policy making, particularly in the case of developing countries, for which the benefits of decentralization may be over-stressed. Developed countries were found to be less adversely affected by coordination failures and have therefore managed to pursue fiscal consolidation in a decentralized setup.     

Do supermajority rules limit or enhance majority tyranny? evidence from the US States, 1960–1997

Buchanan and Tullock (1962) demonstrates that supermajority rules can reduce tyranny of majority problems in a democracy. However, recent theoretical work by Dixit, Grossman, and Gul (2000) postulates that this static analysis of supermajority rules may be inadequate to explain political decisions in a dynamic setting. In fact, supermajority rules may increase the incidence of majority tyranny because of rotating political representation. Using data from US state legislatures we examine the effect of supermajority rules on different categories of government expenditures and tax revenues during the latter half of the 20th century. We find supermajority rules have little effect on general government expenditures and tax revenues. However, supermajority rules are associated with lower public welfare transfers, which supports the traditional analysis of the fiscal effects of supermajority rules.     

Negotiating universalism in India and Latin America: Fiscal decentralization,subnational politics and social outcomes

ABSTRACT

This is the introductory paper for a special issue which focuses on an exploration of how vertical inter-governmental political and fiscal bargains and horizontal variation in political, social and economic conditions across regions contribute to or undermine the provision of inclusive and sustainable social policies at the subnational level in Latin America and India. The papers incorporate both federal, as well as decentralized unitary states, pointing to common political tensions across unitary and federal settings despite the typically greater institutionalization of regional autonomy in federal countries. Jointly, the papers examine the territorial dimension of universalism and explore, in greater and empirical detail, the causal links between fiscal transfers, social policies and outcomes, highlighting the political dynamics that shape fiscal decentralization reforms and the welfare state. This introductory essay reviews existing scholarship, and highlights the contribution of the special issue to understanding these issues beyond OECD contexts.     

Demographic,Employment, Expenditure,and Income‐Related Dependency Ratios: Population Aging in the Fifty States

Old‐age dependency ratios (OADR) are frequently used to measure the economic impact of U.S. population aging. However, at the state level youth‐dependence, and the “birth dearth,” are important. While federal expenditures on elder Social Security, Medicare, and Medicaid are large, state expenditures on dependent youth are much higher than on elders. The states are ranked by the OADR and three other dependency ratios that consider youth and a state's employment, fiscal outlay, and per‐capita income. Very different rankings are found. States with higher OADR ratios had lower total dependency expenditures. Projections for 2030 are compared with 2000 results.     

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.