Parable of the Talents: Does Differentiated Decentralisation Improve Performance?

Luiz de Mello and Joao Tovar Jalles
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Luiz de Mello: OECD
Joao Tovar Jalles: Instituto Superior de Economia e Gestao (ISEG), Universidade de Lisboa, Portugal

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: The decentralisation of policy functions to subnational levels of government need not be uniform across same-level jurisdictions and may instead be differentiated to reflect differences in administrative capacity, preferences and needs. This paper examines whether differentiated arrangements that grant greater policy authority non-uniformly to selected jurisdictions are systematically associated with stronger economic performance. Using harmonised regional data for middle-tier jurisdictions across OECD countries, we combine cross-sectional, within-region and dynamic event-study approaches. Cross-sectional evidence shows that regions with differentiated authority tend to exhibit higher income levels than standard jurisdictions, even after controlling for observable fundamentals and time-invariant regional characteristics. However, within-region estimates reveal no performance gains following differentiation, and dynamic event-study evidence indicates no systematic improvement in economic outcomes after reforms are adopted. Together, these findings suggest that the income premia observed among differentiated regions primarily reflect long-standing structural characteristics rather than the causal effects of institutional reform.

Pages: 24 pages
Date: 2026-01
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Persistent link: https://EconPapers.repec.org/RePEc:ays:ispwps:paper2603

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