Does Fiscal Decentralization Dampen All Ethnic Conflicts? The heterogeneous Impact of Fiscal Decentralization on Local Minorities and Local Majorities

Jean-Pierre Tranchant

MPRA Paper from University Library of Munich, Germany

Abstract: Fiscal decentralization is widely proposed as an efficient means to accommodate ethnic violence. Yet while most of the econometric cross-country studies supports this view, case studies offer mixed results. In this paper, it is argued that this is partly due to the fact that fiscal decentralization exerts a heterogeneous impact across ethnic local majorities and minorities, both types of groups being regionally concentrated. The main argument in favour of fiscal decentralization is that by politically and fiscally empowering the local communities, these are enabled to allocate public spending in a way that is closer to their preferences. This paper hypothesises that such an empowerment mechanism, while relevant for local majorities, is likely to perform poorly for local minorities as they are not in a dominant position locally. This might feed ethnic violence as local minorities mobilize to obtain administrative regions in which they would control the decentralized policy. Similarly, fiscal decentralization could fuel communal violence as politically marginalized ethnic minorities clash against powerful local majorities. The article also hypothesises that the concern expressed by sceptics that fiscal decentralization undermines national cohesion and encourages secessionism is more acute for local majorities than for local minorities as the latter are usually too small to credibly envisage independence. Such hypotheses are discussed in the paper and then empirically tested on a panel dataset of ethnic local majorities and minorities across the world on the period 1985-2001. The main results are that i) fiscal decentralization does not encourage secessionism but on the contrary dampen rebellion of local majorities but, ii) fiscal decentralization fuels rebellion of local minorities, iii) fiscal decentralization reduces communal violence for both local majorities and minorities. As a result of its heterogeneous impact, the article calls into question the relevance of relying on fiscal decentralization to manage ethnic violence.

Keywords: Ethnic conflict; fiscal decentralization; panel data (search for similar items in EconPapers)
JEL-codes: D74 H70 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-pbe and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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