Regional inequalities, fiscal decentralization and government quality: empirical evidence from simultaneous equations

Andreas Kyriacou, Leonel Muinelo-Gallo and Oriol Roca-Sagalés

No 1501, Working Papers. Collection A: Public economics, governance and decentralization from Universidade de Vigo, GEN - Governance and Economics research Network

Abstract: There are theoretical arguments supporting the view that regional income inequalities, the degree of fiscal decentralization and the quality of government are simultaneously determined. To the extent that previous work has considered feedback effects between them, it has done so through instrumental variable estimates based on instruments whose validity can be questioned. Moreover, most existing work has estimated the relationship between any two of these variables in the absence of the third. Our empirical evidence, drawn from a sample of 23 OECD countries and based on a simultaneous equation model which accounts for the joint determination of these three variables, suggests that a process of fiscal decentralization, accompanied by measures to improve the quality of government, would be an effective strategy for reducing regional inequalities.

Keywords: regional inequalities; fiscal decentralization; governance; reverse causality; panel data; simultaneous equations models (search for similar items in EconPapers)
JEL-codes: C33 D73 H71 H73 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2015-02
New Economics Papers: this item is included in nep-ure
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Citations: View citations in EconPapers (1)

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