Fiscal decentralization and regional disparities: the importance of good governance

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

No 13-03, Documentos de Trabajo (working papers) from Instituto de Economía - IECON

Abstract: In this paper we consider how government quality mediates the relationship between fiscal decentralization and regional disparities. Previous work has argued that fiscal decentralization has the potential to reduce income difference across regions but that this potential may not be realized because of governance problems associated with subnational authorities. Our empirical evidence based on a sample of 24 OECD countries over the period 1984 to 2006 lends a measure of support to this idea. We find that fiscal decentralization promotes regional convergence in high government quality settings but, worryingly, it leads to wider regional disparities in countries with poor governance. Because most poor countries are plagued with governance problems, this would caution against fiscal decentralization with a view to reducing regional disparities in these countries.

Keywords: fiscal decentralization; regional disparities; government quality (search for similar items in EconPapers)
JEL-codes: D73 H71 H73 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2013-03
New Economics Papers: this item is included in nep-geo, nep-pbe and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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https://hdl.handle.net/20.500.12008/4238

Related works:
Journal Article: Fiscal decentralization and regional disparities: The importance of good governance (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:ulr:wpaper:dt-03-13

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