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Fiscal Decentralization and Government Size: The Role of Democracy

Mo Qiao, Siying Ding and Yongzheng Liu
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Mo Qiao: Peking University
Siying Ding: Renmin University of China & Indiana University Bloomington
Yongzheng Liu: Renmin University of China

International Center for Public Policy Working Paper Series, at AYSPS, GSU from International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University

Abstract: This paper examines how the level of democracy in a country affects the relationship between fiscal decentralization and government size. We argue that political regimes, proxied by their democracy levels, are important for different decentralization theories to predict the impact of fiscal decentralization on government size. We test this argument using cross-country data from 76 developed and developing countries during 1972–2013. We find strong and robust evidence that fiscal decentralization is negatively associated with government size and that a higher level of democracy tends to mitigate the negative impact of fiscal decentralization. Therefore, our study contributes to the literature by offering a novel insight on mixed results regarding the relationship between fiscal decentralization and government size in the literature.

New Economics Papers: this item is included in nep-mac and nep-pol
Date: 2018-09
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Persistent link: https://EconPapers.repec.org/RePEc:ays:ispwps:paper1818

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