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Fiscal decentralization and public sector efficiency: Do natural disasters matter?

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  • Afonso, António
  • Tovar Jalles, João
  • Venâncio, Ana

Abstract

This paper investigates the impact of fiscal decentralization on public sector efficiency, emphasizing the mediating role of natural disasters, a relevant question in a context of scarce fiscal resources. We analyze data from 36 OECD countries between 2006 and 2019, employing Data Envelopment Analysis to compute efficiency scores and using panel data alongside impulse response methods to estimate the effects of decentralization. Our findings indicate that while tax revenue decentralization generally diminishes public sector efficiency, spending decentralization and higher regional authority indices enhance it. However, in the context of severe natural disasters, these relationships alter: spending decentralization's positive effect on efficiency diminishes, and the adverse impact of tax revenue decentralization intensifies. These results underline the complex dynamics between fiscal decentralization and public sector efficiency, particularly in the face of extreme natural events, indicating that decentralized fiscal responses are less effective during such crises.

Suggested Citation

  • Afonso, António & Tovar Jalles, João & Venâncio, Ana, 2024. "Fiscal decentralization and public sector efficiency: Do natural disasters matter?," Economic Modelling, Elsevier, vol. 137(C).
    • Handle: RePEc:eee:ecmode:v:137:y:2024:i:c:s0264999324001196
    DOI: 10.1016/j.econmod.2024.106763
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    More about this item

    Keywords

    Public sector efficiency; Data envelopment analysis; Local projections; Revenue decentralization; Spending decentralization; Natural disasters; OE;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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