Fiscal Decentralization Improves Social Outcomes When Countries Have Good Governance

Ryota Nakatani, Qianqian Zhang and Isaura Garcia Valdes

No 2022/111, IMF Working Papers from International Monetary Fund

Abstract: Does fiscal decentralization improve health and educational outcomes? Does this improvement depend on the quality of governance? How do fiscal decentralization and governance interact? We answer these questions through an instrumental variable Tobit analysis of cross-country panel data. We find negative effects of fiscal decentralization on health outcomes, which however are more than offset by better governance. Education expenditure decentralization to subnational governments enhances educational outcomes. We conclude that countries can only reap the benefits from decentralization when the quality of their governance arrangements exceeds a certain threshold. We also find that sequencing and staging of decentralization matter. Countries should improve government effectiveness and control of corruption first to maximize benefits of fiscal decentralization.

Keywords: Fiscal Decentralization; Governance; Corruption; Health; Education; education expenditure decentralization; government effectiveness; decentralization matter; Subnational government; health outcome; governance Indicator; Fiscal federalism; Health care spending; Global (search for similar items in EconPapers)
Pages: 29
Date: 2022-06-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=518882 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2022/111

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().