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Does Fiscal Federalism Promote Regional Inequality? An Empirical Analysis of the OECD, 1980-2005

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  • Jason Sorens

Abstract

Sorens J. Does fiscal federalism promote regional inequality? An empirical analysis of the OECD, 1980-2005, Regional Studies . This paper explores the relationship between fiscal federalism, understood as institutionalized regional economic self-rule, and convergence in regional per capita incomes. The principal economic argument against fiscal federalism is that, unless paired with generous equalization grants, it will enhance regional inequalities by reducing inter-regional redistribution. Does the evidence support this claim? Multilevel spatial regressions on primary sub-national jurisdictions in twenty-five Organisation for Economic Co-operation and Development (OECD) countries show that lower-income regions tend to catch up with higher-income regions only when they enjoy substantial economic powers. Indeed, there is more convergence across member states of the European Union than across regions within almost any of the European Union member states. Fiscal federalism may pose less serious tradeoffs than commonly assumed.

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  • Jason Sorens, 2014. "Does Fiscal Federalism Promote Regional Inequality? An Empirical Analysis of the OECD, 1980-2005," Regional Studies, Taylor & Francis Journals, vol. 48(2), pages 239-253, February.
    • Handle: RePEc:taf:regstd:v:48:y:2014:i:2:p:239-253
    DOI: 10.1080/00343404.2012.661851
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    References listed on IDEAS

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    1. Kessler, Anke & Lessmann, Christian, 2010. "Interregional Redistribution and Regional Disparities: How Equalization Does (Not) Work," CEPR Discussion Papers 8133, C.E.P.R. Discussion Papers.
    2. Christopher F Baum, 2006. "An Introduction to Modern Econometrics using Stata," Stata Press books, StataCorp LP, number imeus.
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    Cited by:

    1. Yutao Han & Patrice Pieretti & Benteng Zou, 2018. "Does tax competition increase infrastructural disparity among jurisdictions?," Review of International Economics, Wiley Blackwell, vol. 26(1), pages 20-36, February.
    2. Javier Martín-Román & Luis Ayala & Juan Vicente, 2017. "Regional inequality in decentralized countries: a multi-country analysis using LIS," LIS Working papers 697, LIS Cross-National Data Center in Luxembourg.
    3. Philipp Erfurth, 2022. "Is Income Inequality Converging at the Regional Level? Evidence from LIS Data," LIS Working papers 841, LIS Cross-National Data Center in Luxembourg.
    4. Giannola, Adriano & Petraglia, Carmelo & Scalera, Domenico, 2016. "Net fiscal flows and interregional redistribution in Italy: A long-run perspective (1951–2010)," Structural Change and Economic Dynamics, Elsevier, vol. 39(C), pages 1-16.
    5. Sorens, Jason, 2016. "Vertical Fiscal Gaps and Economic Performance: A Theoretical Review and an Empirical Meta-analysis," Working Papers 06856, George Mason University, Mercatus Center.
    6. Juan Mauricio Ramírez & Yadira Díaz & Juan Guillermo Bedoya, 2014. "Decentralization in Colombia : searching for social equity in a bumpy economic geography," Working Papers Series. Documentos de Trabajo 11557, Fedesarrollo.
    7. Yongzheng Liu & Jorge Martinez-Vazquez & Alfred M. Wu, 2017. "Fiscal decentralization, equalization, and intra-provincial inequality in China," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(2), pages 248-281, April.
    8. Jesús Peiró‐Palomino & Andrés J. Picazo‐Tadeo & Vicente Rios, 2020. "Well‐being in European regions: Does government quality matter?," Papers in Regional Science, Wiley Blackwell, vol. 99(3), pages 555-582, June.
    9. Joan Costa-Font & Gilberto Turati, 2018. "Regional healthcare decentralization in unitary states: equal spending, equal satisfaction?," Regional Studies, Taylor & Francis Journals, vol. 52(7), pages 974-985, July.
    10. Lucas, David S. & Boudreaux, Christopher J., 2020. "National regulation, state-level policy, and local job creation in the United States: A multilevel perspective," Research Policy, Elsevier, vol. 49(4).
    11. Rosella Levaggi & Francesco Menoncin, 2015. "Would less solidarity justify present calls for devolution?," Working papers 32, Società Italiana di Economia Pubblica.
    12. Rosella Levaggi & Francesco Menoncin, 2017. "Would less regional income distribution justify the present call for devolution?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(5), pages 780-799, September.
    13. Taeko Hiroi, 2019. "Paradox of Redistribution: Legislative Overrepresentation and Regional Development in Brazil," Publius: The Journal of Federalism, CSF Associates Inc., vol. 49(4), pages 642-670.

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