The Macroeconomic Impact of Decentralized Spending and Deficits: International Evidence

Francesca Fornasari, Steven Webb and Heng-Fu Zou ()
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Francesca Fornasari: The World Bank
Steven Webb: The World Bank

Annals of Economics and Finance, 2000, vol. 1, issue 2, 403-433

Abstract: The main macroeconomic questions about decentralization are whether it has led to an overall expansion of the public sector or to unsustainable fiscal deficits. In the long term, subnational spending contributes to a larger overall government sector, but steady subnational deficits do not affect the average level of central government deficits, according to our economic analysis of 32 industrial and developing countries, 1980-94. Increases of subnational spending and deficits, however, lead to increases in spending and deficits at the national level. The relationships are strong economically as well as significant statistically. We can reject the hypothesis that increases of transfers between central and subnational governments are usually determined exogenously by the center.

Keywords: Decentralization; Public spending; Deficits (search for similar items in EconPapers)
JEL-codes: E5 E6 H5 (search for similar items in EconPapers)
Date: 2000
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Citations: View citations in EconPapers (35)

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Working Paper: The Macroeconomic Impact of Decentralized Spending and Deficits: International Evidence (2000)
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Persistent link: https://EconPapers.repec.org/RePEc:cuf:journl:y:2000:v:1:i:2:p:403-433

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