Revenue Decentralization and Vertical Fiscal Imbalance: A Survey

Manuel E. Lago, Santiago Lago-Peñas, Jorge Martinez-Vazquez and Cristian Sepulveda

No WP2611, IDEAGOV Working Papers from IDEAGOV - International Center for Decentralization and Governance

Abstract: This paper offers a comprehensive and updated survey of subnational revenue autonomy and vertical fiscal imbalance in fiscally decentralized systems. We argue that progress in understanding the effects of revenue decentralization has been fundamentally shaped by how it is measured, and that the widespread reliance on transfer-dependence proxies has generated persistent inconsistencies in the empirical literature. Moreover, distinguishing between optimal, actual, and excess Vertical Fiscal Imbalance is essential for policy design. We focus on the effects of revenue autonomy in enhancing spending efficiency, strengthening accountability, and promoting fiscal discipline, while also shaping outcomes in macroeconomic stability, economic growth, and regional redistribution. While the intricate nature of the subject does not allow for an all-inclusive survey, we aim to provide a thorough examination of the most salient effects of subnational revenue autonomy and the pervasiveness of vertical fiscal imbalances. We conclude by highlighting priorities for future research.

Keywords: Revenue Assignments; Vertical Fiscal Imbalances; Tax Autonomy; Fiscal Decentralization; Subnational Governments (search for similar items in EconPapers)
JEL-codes: H71 H72 H73 H77 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2026-05-05
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