FISCAL CONSOLIDATION AND DECENTRALISATION: A TALE OF TWO TIERS

Julia Darby, Vito Muscatelli and Graeme Roy

Working Papers from Business School - Economics, University of Glasgow

Abstract: This paper contributes to the established literature on fiscal consolidations (e.g. Alesina and Perotti, 1995, 1997, Alesina et al, 1998) 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 subcentral 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.

Date: 2004-02
New Economics Papers: this item is included in nep-geo, nep-mac and nep-ure
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Fiscal consolidation and decentralisation: a tale of two tiers (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:gla:glaewp:2004_2

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