FISCAL DECENTRALIZATION AND ECONOMIC VOLATILITY: EVIDENCE FROM STATE‐LEVEL CROSS‐SECTION DATA OF THE USA*

Nobuo Akai (), Masayo Hosoi and Yukihiro Nishimura

The Japanese Economic Review, 2009, vol. 60, issue 2, 223-235

Abstract: This paper examines the implications of fiscal decentralization for economic stability. It has been discussed that fiscal decentralization reduces the variance of GDP growth, due to the greater diversification of performance across jurisdictions. We examine this theoretical result using a panel data set of the 50 states of the USA over the period of 1992–1997. We show that the theoretical specification of the production function is supported. We also show a negative significant relationship between fiscal decentralization and economic volatility. The results are robust when we take into account the endogeneity of fiscal decentralization.

Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:bla:jecrev:v:60:y:2009:i:2:p:223-235

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