Fiscal Stability during the Great Recession: Putting Decentralization Design to the Test

Santiago Lago-Peñasa (), Jorge Martinez-Vazquez () and Agnese Sacchic ()
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Santiago Lago-Peñasa: Governance and Economics research Network (GEN), University of Vigo
Agnese Sacchic: La Sapienza University of Rome (Italy) & Governance and Economics research Network (GEN)
Authors registered in the RePEc Author Service: Santiago Lago-Peñas and Agnese Sacchi

International Center for Public Policy Working Paper Series, at AYSPS, GSU from International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University

Abstract: There is a longstanding debate in the economics literature on whether fiscally decentralized countries are inherently more fiscally unstable. The Great Recession provides a fertile testing ground for analyzing how the degree of decentralization does actually affect countries’ ability to implement fiscal stabilization policies in response to macroeconomic shocks. We provide an empirical analysis aiming at disentangling the roles played by decentralization design itself and several recently introduced budgetary institutions such as subnational borrowing rules and fiscal responsibility laws on country’s fiscal stability. We use OECD countries’ data since 1995, which includes both a boom period of worldwide economic growth and the Great Recession. Our main finding is that well-designed decentralized systems are not destabilizing. But, in addition, sub-national fiscal and borrowing rules should be at work to improve the overall fiscal stability performance of decentralized countries.Length: 29 pages

Date: 2018-02
New Economics Papers: this item is included in nep-eec, nep-mac and nep-ure
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Fiscal stability during the Great Recession: putting decentralization design to the test (2020)
Working Paper: Fiscal stability during the great recesion: Putting decentralization design to the test (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ays:ispwps:paper1805

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