Fiscal consolidation and decentralisation: a tale of two tiers

Julia Darby, Vito Muscatelli and Graeme Roy

Fiscal Studies, 2005, vol. 26, issue 2, 169-195

Abstract: This paper contributes to the established literature on fiscal consolidations by investigating the distinct behaviour of central and sub-central tiers of government during general government consolidation attempts. In the light of different degrees of decentralisation across OECD countries, and the different responsibilities devolved to sub-central tiers, we believe that this approach offers an illuminating insight into the analysis of fiscal consolidations and their success. We show that the involvement of the sub-central tiers of government is crucial to achieving cuts in expenditure, particularly in relation to the overall size of the government wage bill. In addition, central governments appear to exert a strong influence on the expenditure of sub-central tiers through their grant allocations, and control of these allocations appears to have a considerable impact upon the overall success of consolidation attempts. Finally, we demonstrate that there is a skewness in cuts towards sub-central capital expenditure both when central governments cut grant allocations and when sub-central governments engage in lone consolidation attempts.

JEL-codes: E62 E65 H11 H77 (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (17)

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Working Paper: FISCAL CONSOLIDATION AND DECENTRALISATION: A TALE OF TWO TIERS (2004)
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