Fiscal decentralisation, efficiency, and growth

Andrés Rodríguez-Pose, Sylvia A. R. Tijmstra () and Adala Bwire ()
Additional contact information
Sylvia A. R. Tijmstra: London School of Economics, http://personal.lse.ac.uk/tijmstra/
Adala Bwire: London School of Economics

No 2007-11, Working Papers from Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales

Abstract: Much of the recent worldwide trend towards devolution has been driven by the belief that fiscal decentralization is likely to have a positive effect on government efficiency and economic growth. It is generally assumed that the transfer of powers and resources to lower tiers of government allows for a better matching of public policies to local needs and thus for a better allocation of resources. These factors, in turn, are expected to lead to an improvement in regional economic performance, if subnational authorities shift resources from current to capital expenditures in search of a better response to local needs. This paper tests these assumptions empirically by analysing the evolution of subnational expenditure categories and regional growth in Germany, India, Mexico, Spain, and the USA. We find that, contrary to expectations, decentralisation has coincided in the sample countries with a relative increase in current expenditures at the expense of capital expenditures, which has been associated with lower levels of economic growth in countries where devolution has been driven from above (India and Mexico), but not in those where it has been driven from below (Spain). The paper hypothesises that the differences in legitimacy between the central or federal government and subnational governments in top-down and bottom-up processes of devolution may be at the origin of the diverse capacity to deliver greater allocative and productive efficiency and, eventually, greater economic growth by devolved governments.

Keywords: devolution; fiscal decentralisation; subnational expenditure; economic growth; Germany; India; Mexico; Spain; United States (search for similar items in EconPapers)
Date: 2007-04-26
New Economics Papers: this item is included in nep-cwa, nep-geo and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Published in Environment and Planning A 41(9), September 2009: 2041-2062

Downloads: (external link)
http://repec.imdea.org/pdf/imdea-wp2007-11.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 500 Can't connect to repec.imdea.org:80 (A connection attempt failed because the connected party did not properly respond after a period of time, or established connection failed because connected host has failed to respond.)

Related works:
Journal Article: Fiscal Decentralisation, Efficiency, and Growth (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:imd:wpaper:wp2007-11

Access Statistics for this paper

More papers in Working Papers from Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales Contact information at EDIRC.
Bibliographic data for series maintained by IMDEA RePEc Maintainer ( this e-mail address is bad, please contact ).