Decentralization and Economic Development: An Evolutionary Approach

Motohiro Sato and Shinji Yamashige

Journal of Public Economic Theory, 2005, vol. 7, issue 3, 497-520

Abstract: There has been a growing interest in relationship between economic development and fiscal decentralization. Empirical studies, however, are not conclusive regarding their correlation or causality. The present paper aims to provide a theoretical foundation for better understanding of this issue. Developing a dynamic model, we argue that decentralization and development proceed hand in hand, interacting one another, and that the relation between them is not monotonic but evolutionary. We also show that there will exist multiple steady states and that political decision of fiscal decentralization in general fails to lead the economy to the most desirable one.

Date: 2005
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https://doi.org/10.1111/j.1467-9779.2005.00214.x

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