Partial Fiscal Decentralization and Subnational Government Fiscal Discipline: Empirical Evidence from OECD Countries
Journal article, Peer reviewed
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Original versionPublic Choice 2015, 163(3-4):307-320 10.1007/s11127-015-0250-2
Recent theoretical research suggests that financing sub-national governments’ expenditure out of own revenue sources is linked to more responsible budgeting, because the financial implications of spending decisions then are internalized within a jurisdiction. We test this proposition empirically on a sample of 23 OECD countries over the 1975–2000 period, and find evidence in line with the hypothesis that greater revenue decentralization (measured as sub-national governments’ share of own source tax revenues in general government tax revenue) is associated with improved sub-national government budget deficits/surpluses. This finding is cross-validated with a novel, independent dataset consisting of all 34 OECD member states from 2002 to 2008.
This is the authors' accepted and refereed manuscript to the article