New Evidence on the Effect of Fiscal Decentralization on the Size and Composition of Government Spending

Jon Fiva

FinanzArchiv: Public Finance Analysis, 2006, vol. 62, issue 2, 250-280

Abstract: This paper adds to the literature by utilizing improved data on tax revenue decentralization to reexamine the relationship between fiscal decentralization and the size of government. An econometric analysis using panel data from 18 OECD countries shows that fiscal decentralization matters for both the size and the composition of government spending. Tax revenue decentralization is associated with a smaller public sector, while expenditure decentralization is associated with a larger public sector. The results indicate that the former effect is driven by a reduction in social security transfers, while the latter effect is driven by increased government consumption.

Keywords: fiscal federalism; subcentral fiscal autonomy; size of government; composition of government (search for similar items in EconPapers)
JEL-codes: H11 H53 H77 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (48)

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DOI: 10.1628/001522106X120659

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