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Decentralized Governance, Expenditure Composition, and Preferences for Public Goods

Author

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  • F. Javier Arze del Granado
  • Jorge Martinez-Vazquez
  • Robert M. McNab

Abstract

The literature on decentralization has long asserted that decentralized governance increases public sector allocative efficiency. We offer an indirect test of this hypothesis by examining how decentralized governance affects revealed preferences for public goods. Specifically, we examine the relationship between expenditure decentralization and the functional composition of public expenditures. We hypothesize that higher levels of expenditure decentralization induce agents to demand increased production of publicly provided private goods. We test this hypothesis using an unbalanced panel data set of forty-two developed and developing countries over twenty-two years. Using system Generalized Methods of Moments and Quasi-Maximum Likelihood estimators, we find that expenditure decentralization positively, significantly, and robustly influences the share of education expenditures in consolidated government budgets. We also find evidence to suggest that expenditure decentralization positively influences the share of health expenditures in consolidated government budgets. Decentralized governance appears to alter the composition of public expenditures toward publicly provided private goods.

Suggested Citation

  • F. Javier Arze del Granado & Jorge Martinez-Vazquez & Robert M. McNab, 2018. "Decentralized Governance, Expenditure Composition, and Preferences for Public Goods," Public Finance Review, , vol. 46(3), pages 359-388, May.
    • Handle: RePEc:sae:pubfin:v:46:y:2018:i:3:p:359-388
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    Citations

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    Cited by:

    1. Marko Crnogorac & Santiago Lago-Peñas, 2023. "An analysis of COFOG expenditures in former Yugoslavian countries," Public Sector Economics, Institute of Public Finance, vol. 47(2), pages 233-254.
    2. Andreas P Kyriacou & Oriol Roca-Sagalés, 2024. "Fiscal Decentralization and Health Care Access and Quality: Evidence from Local Governments around the World," Publius: The Journal of Federalism, CSF Associates Inc., vol. 54(2), pages 313-338.
    3. Liu, Qijun & Song, Lijie, 2022. "Do intergovernmental transfers boost intergenerational income mobility? Evidence from China," Structural Change and Economic Dynamics, Elsevier, vol. 63(C), pages 293-309.
    4. Henry Aray & Janeth Pacheco-Delgado, 2022. "Fiscal Decentralization and the Allocation of Public Spending of Subnational Governments. The Case of Ecuador," ThE Papers 22/01, Department of Economic Theory and Economic History of the University of Granada..
    5. Andreas P. Kyriacou & Oriol Roca-Sagalés, 2019. "Local Decentralization and the Quality of Public Services in Europe," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 145(2), pages 755-776, September.
    6. Akalbeo, Benard & Martinez-Vazquez, Jorge & Yedgenov, Bauyrzhan, 2023. "Fiscal decentralization and structural versus cyclical unemployment levels," European Journal of Political Economy, Elsevier, vol. 80(C).
    7. Danielle Resnick, 2022. "Does Accountability Undermine Service Delivery? The Impact of Devolving Agriculture in Ghana," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 34(2), pages 1003-1029, April.
    8. Mao Zheng & Xiaoguang Li & Zhilong Qin & Muhammad Tayyab Sohail, 2023. "Examining the Impact of Fiscal Resources on Anti-Poverty Expenditure: Evidence from China," Sustainability, MDPI, vol. 15(5), pages 1-17, March.
    9. Singh, Richa & Bhattacharjee, Sankalpa & Nandy, Amarendu, 2024. "Fiscal decentralization for the delivery of health and education in Indian states: An ongoing process is more desirable than a policy shift," Journal of Policy Modeling, Elsevier, vol. 46(2), pages 254-271.
    10. Rahul Pathak, 2023. "Do Subnational Fiscal Rules Reduce Public Investment? The Case of Fiscal Responsibility Laws in India," Public Finance Review, , vol. 51(3), pages 315-338, May.

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