Federalism, decentralisation and corruption

We investigate the empirical relationship between decentralisation and corruption. Using a newly assembled dataset containing data for up to 174 countries, we revisit the empirical evidence and seek to explain some of the inconsistent results that exist in the literature. We find that not only results differ due to the use of different specifications and data but more importantly because previous research overlooks the relationship between different dimensions of decentralisation. We propose an approach aimed at exploring the aggregate effect of decentralization on corruption. In this context, we analyze the existence of direct and indirect effects of these aspects on corruption. Our results suggest that fiscal (market) decentralisation is associated with lower corruption. However, we also find that constitutional decentralisation (federalism) is associated with higher corruption. Furthermore, we find that certain forms of political decentralisation worsen the positive effect of constitutional centralization on corruption. Finally, other forms of decentralisation such as spatial decentralisation do not appear to have a strong association with corruption. Our results suggest the possibility that previous empirical work may grossly overestimate de aggregate impact of decentralization and corruption.Fiscal decentralisation; Corruption; Federalism; Unitarism; Political Institutions

Modelling tax decentralisation and regional growth

The aim of this paper is to determine a theoretical linkage between tax decentralisation and regional growth. For this purpose a two fiscal tiers growth model is specified. First, working on Zou (1996) analytical framework, which account for the potential effects of intergovernmental policies on regional growth, a tax decentralisation process is brought in. Next its original model is expanded taking into account such process. It is shown that the effect of tax decentralisation on regional growth depends on the existing relationship between private and regional public capital productivities ratio and their stocks ratio square root. Finally a hypothesis for the Spanish economy is obtained. It will be checked empirically in subsequent work. Keywords: tax decentralisation; general equilibrium analysis; regional growth JEL classification: H70; O40; R13

What Drives Fiscal Decentralisation?

This paper investigates the determinants of fiscal decentralisation, focusing in particular on the impact of the level of income on the level of fiscal decentralisation. Various measures of fiscal decentralisation, several of them novel in this context, are employed in a cross-country econometric model to test established and more recent hypotheses. Paying careful attention to variable measurement, model specification and sample coverage, the results suggest that there are significant relationships between a range of factors, including income, geographical size, population density, population diversity, military expenditure, the structure of the public sector and openness to trade, and fiscal decentralisation. However, these relationships may be more complicated than previously reported. For the entire sample and for the OECD subsample a positive relationship between income and decentralisation is found, which corroborates the results found in earlier studies. However, for the middle and lower income nations, higher income is found to be associated with less decentralisation.

Fiscal Decentralisation in Vietnam: a Preliminary Investigation

Fiscal decentralisation is a complex theoretical and practical issue. The literature is currently divided on whether there is a positive or negative relationship between fiscal decentralisation and economic growth, and it appears that this is in large part due to inconsistent measures of fiscal decentralisation. In this paper, fiscal decentralisation in Vietnam will be examined, with a view to developing a fiscal decentralisation index that accounts for both the fiscal autonomy and fiscal importance of subnational governments to compare the degree of fiscal decentralisation in Vietnam with that of a range of other countries. This will facilitate subsequent (and hopefully definitive) investigations of the relationship between fiscal decentralisation and economic growth.Fiscal Decentralisation, Economic Growth, Fiscal Autonomy, Fiscal Importance, Vietnam

Fiscal decentralisation and the size of government: a review of the empirical literature

Within the public choice framework, it has been argued that decentralised authority over the provision and financing of certain public goods and services induces competitive pressure among different governmental units and consequently reduces the size of government. However, in many countries, fiscal decentralisation seems to have occurred almost exclusively through devolution of expenditure activities, without the accompanying devolution of the tax authority. We address this issue in detail, and discuss the repercussions of the resulting vertical fiscal imbalance on the total size of government. We also discuss alternative, demand-side channels of the influence of fiscal decentralisation on the size of government. In the empirical literature that we review, little consensus on the relationship between fiscal decentralisation and the size of government is reached.the size of government, fiscal decentralisation, intergovernmental grants,sub-national expenditures, sub-national own-source revenues

Beyond Identities: Support for Decentralisation Across Regions in Spain

After thirty years of the Spanish territorial model being implemented, an important number of citizens in different regions are supporting higher levels of self-government. This article analyses the causal mechanisms put forward by the literature on territorial decentralisation to explain this phenomenon. The Spanish case is employed to quantitatively test the various explanations regarding support for decentralisation. Using a linear hierarchical model we show that, even in those regions without a different sub-national identity, citizens’ evaluation of the regional governments’ public policies is crucial in explaining support for a stronger regional government. In analysing political attitudes towards decentralisation, we highlight the importance of party competition as a crucial determinant, as well as the necessity to consider decentralisation as an endogenous process, in which parties and citizens interact and affect the final territorial model.decentralisation; hierarchical model; national identification; autonomous community

Rational ignorance is not bliss: When do lazy voters learn from decentralised policy experiments?

A popular argument about economic policy under uncertainty states that decentralisation offers the possibility to learn from local or regional policy experiments. We argue that such learning processes are not trivial and do not occur frictionlessly: Voters have an inherent tendency to retain a given stock of policy-related knowledge which was costly to accumulate, so that yardstick competition is improbable to function well particularly for complex issues if representatives’ actions are tightly controlled by the electorate. Decentralisation provides improved learning processes compared to unitary systems, but the results we can expect are far from the ideal mechanisms of producing and utilising knowledge often described in the literature.Policy decentralisation; fiscal competition; model uncertainty; collective learning.

Decentralisation and Poverty Reduction: A Conceptual Framework for the Economic Impact

This paper contributes to providing insights into the impact of decentralisation on poverty. It starts out with an overview of which role decentralisation plays in strategies and policies for poverty eradication and derives economic and political impact channels. It concentrates on the economic channel, the reasoning of which is rooted in fiscal federalism theory. It shows that decentralisation cannot only influence poverty by assigning expenditure responsibility to lower levels of government but also by assigning tax-raising power, which has so far been neglected by the literature. The paper concludes by pointing out a number of possible risks for realising the poverty-reducing potential of decentralisation.Local public goods, local revenue, poverty

Divide and Conquer? Decentralisation, Co-ordination and Cluster Survival

This paper develops a simulation model of the behaviour of clusters in the face of bifurcation events in their environment. Bifurcations are understood as the regional equivalent to Schumpeterian creative destruction. The model investigates the role of decentralisation and co-ordination for the likelihood of successful adaptation by comparing adaptive performance of clusters exhibiting different degrees of decentralisation and alternative modes of co-ordination. Using Kauffman’s (1993) N/K model, it is found that there is an optimum degree of decentralisation with respect to cluster adaptability while different co-ordination mechanisms face a trade-off between speed and cluster-level optimality of results. In doing so, the model sheds light on an empirical controversy regarding the role of both factors for adaptation that has emerged between the Silicon Valley – Boston 128 comparison on the one and the Italian Industrial District experience on the other hand. Moreover, the identification of the roles played by decentralisation and co-ordination for cluster adaptability in changing environments could serve as guidance for future empirical research as well as policy initiatives.Clusters, Bifurcations. N/K model

Gender responsive budgeting and fiscal decentralisation in India: A preliminary appraisal.

Fiscal decentralisation ; Gender