Parable of the Talents: Does Differentiated Decentralisation Improve Performance?

Luiz de Mello and Joao Jalles

No WP2602, IDEAGOV Working Papers from IDEAGOV - International Center for Decentralization and Governance

Abstract: The decentralisation of policy functions to subnational levels of government need not be uniform across same-level jurisdictions and may instead be differentiated to reflect differences in administrative capacity, preferences and needs. This paper examines whether differentiated arrangements that grant greater policy authority non-uniformly to selected jurisdictions are systematically associated with stronger economic performance. Using harmonised regional data for middle-tier jurisdictions across OECD countries, the authors combine cross-sectional, within-region and dynamic event-study approaches. Cross-sectional evidence shows that regions with differentiated authority tend to exhibit higher income levels than standard jurisdictions, even after controlling for fundamentals. However, within-region and dynamic event-study analyses indicate no systematic improvement in economic outcomes following differentiation, suggesting that observed income premia reflect structural characteristics rather than causal effects of institutional reform.

Keywords: fiscal decentralisation; asymmetric decentralisation; policy authority; economic performance; panel data (search for similar items in EconPapers)
JEL-codes: H70 H77 R11 R58 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2026-01-22
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https://repec.ideagov.eu/RePEc/ida/wpaper/WP2602.pdf First version, 2026 (application/pdf)

Related works:
Working Paper: Parable of the Talents: Does Differentiated Decentralisation Improve Performance? (2026)
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