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Fiscal Decentralisation and Economic Growth: Role of Democratic Institutions

Author

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  • Nasir Iqbal

    (Pakistan Institute of Development Economics, Islamabad)

  • Musleh Ud Din

    (Pakistan Institute of Development Economics, Islamabad)

  • Ejaz Ghani

    (Pakistan Institute of Development Economics, Islamabad)

Abstract

This study attempts to analyse the impact of fiscal decentralisation on economic growth. It also examines the complementarity between fiscal decentralisation and democratic institutions in promoting growth. The modelling framework is the endogenous growth model augmented with measures of fiscal decentralisation through democratic institutions. To capture the multidimensionality, three different measures of fiscal decentralisation are used. The overall analysis shows that revenue decentralisation promotes economic growth while expenditure decentralisation retards economic growth. Composite decentralisation positively influences economic growth implying that simultaneous decentralisation of revenue and expenditure reinforce each other to promote economic growth. Analysis also shows that democratic institutions play a significant role in realising the benefits of fiscal decentralisation. Various policy implications emerge from this study.

Suggested Citation

  • Nasir Iqbal & Musleh Ud Din & Ejaz Ghani, 2012. "Fiscal Decentralisation and Economic Growth: Role of Democratic Institutions," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 51(3), pages 173-195.
    • Handle: RePEc:pid:journl:v:51:y:2012:i:3:p:173-195
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    Cited by:

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    2. I. Shovkun, 2018. "Industrial development in decentralized conditions: experience of leading industrial countries and conclusions for Ukraine," Economy and Forecasting, Valeriy Heyets, issue 4, pages 38-64.
    3. Syed Shujaat AHMED & Asif JAVED, 2017. "The Effect of Public Sector Development Expenditures and Investment on Economic Growth: Evidence from Pakistan," Journal of Economics and Political Economy, KSP Journals, vol. 4(2), pages 203-214, June.
    4. Tristan Canare & Jamil Paolo Francisco & Rose Ann Camille Caliso, 2020. "Decentralization and Income Inequality in a Panel and Cross‐Section of Countries," Journal of International Development, John Wiley & Sons, Ltd., vol. 32(4), pages 543-579, May.
    5. Muhammad Shahid & Amjad Ali, 2015. "The Impact of Decentralized Economic Affairs Expenditures on Economic Growth: A Time Series Analysis of Pakistan," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 4(3), pages 136-148, September.
    6. Sidra Naeem & Rana Ejaz Ali Khan, 2021. "Fiscal Decentralization and Gender Equality in Developing Economies: Dynamics of Income Groups in Economies and Corruption," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 11(9), pages 745-761, September.
    7. Anum Ellahi, 2020. "Corruption, Tax Evasion, and Economic Development in Economies with Decentralised Tax Administrative System," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 59(3), pages 419-438.
    8. Nasir Iqbal & Ghulam Mustafa, 2022. "A Review of Accountability Systems: Learning from Best Practices," PIDE Knowledge Brief 2022:82, Pakistan Institute of Development Economics.
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    11. Kıvılcım Özge KARA, 2019. "Discussions on the Chance of Success and Efficiency of Fiscal Decentralisation," Sosyoekonomi Journal, Sosyoekonomi Society, issue 27(40).
    12. Ghulam Muhammad Mangnejo & Muhammad Saleem Rahpoto, 2019. "A Study of Linkages between Fiscal Decentralization and Macroeconomic Performance in Pakistan (2000-2015)," Global Regional Review, Humanity Only, vol. 4(4), pages 219-228, December.
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    14. Abd. Ghani, Judhiana & Grewal, Bhajan & Ahmed, Abdullahi D. & Mohamed Nor, Norashidah, 2019. "Fiscal Decentralisation and Economic Growth in Malaysia: A Market Preserving Federalism Perspective," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 53(1), pages 153-170.
    15. Sehrish Shahzad & Bushra Yasmin, 2016. "Does Fiscal Decentralisation Matter for Poverty and Income Inequality in Pakistan?," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 55(4), pages 781-802.
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    More about this item

    Keywords

    Fiscal Decentralisation; Democracy; Economic Growth; Pakistan;
    All these keywords.

    JEL classification:

    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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