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Fiscal Decentralization and Governance

Author

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  • Yener Altunbas

    (Bangor University)

  • John Thornton

    (Bangor University)

Abstract

The literature on the economics of fiscal decentralization stresses the potential for both positive and negative effects on the quality of governance in a country. The empirical evidence on the issue is scant. In this paper, we add to the empirical evidence by testing for a relationship between fiscal decentralization and changes in indicators of the quality of governance in a cross-section of developed and developing economies. We find that greater fiscal decentralization is consistently associated with improvements in the quality of governance and that this result is robust to different institutional frameworks governing decentralization, to different estimation methodologies, to variations in the country sample, and to controlling for the influence of variables that other studies have identified as affecting the quality of governance. Our results support the view that one justification for greater fiscal decentralization is the beneficial impact on a country’s governance that may result.

Suggested Citation

  • Yener Altunbas & John Thornton, 2010. "Fiscal Decentralization and Governance," Working Papers 10010, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
    • Handle: RePEc:bng:wpaper:10010
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    Cited by:

    1. Ryota Nakatani & Qianqian Zhang & Isaura Garcia Valdes, 2022. "Fiscal Decentralization Improves Social Outcomes When Countries Have Good Governance," IMF Working Papers 2022/111, International Monetary Fund.
    2. Smoke, Paul, 2016. "Looking Beyond Conventional Intergovernmental Fiscal Frameworks: Principles, Realities, and Neglected Issues," ADBI Working Papers 606, Asian Development Bank Institute.
    3. Takaaki Masaki, 2016. "The impact of intergovernmental transfers on local revenue generation in Africa: Evidence from Tanzania," WIDER Working Paper Series wp-2016-113, World Institute for Development Economic Research (UNU-WIDER).
    4. Jorge Martinez-Vazquez & Santiago Lago-Peñas & Agnese Sacchi, 2017. "The Impact Of Fiscal Decentralization: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 31(4), pages 1095-1129, September.
    5. Maria Rosaria Alfano & Anna Laura Baraldi & Claudia Cantabene, 2019. "The Effect of Fiscal Decentralization on Corruption: A Non‐linear Hypothesis," German Economic Review, Verein für Socialpolitik, vol. 20(1), pages 105-128, February.
    6. Andrea Filippetti & Agnese Sacchi, 2016. "Decentralization and economic growth reconsidered: The role of regional authority," Environment and Planning C, , vol. 34(8), pages 1793-1824, December.
    7. Ryota Nakatani & Qianqian Zhang & Isaura Garcia Valdes, 2024. "Health Expenditure Decentralization and Health Outcomes: The Importance of Governance," Publius: The Journal of Federalism, CSF Associates Inc., vol. 54(1), pages 59-87.
    8. Paul Smoke, 2013. "Why Theory and Practice are Different: The Gap Between Principles and Reality in Subnational Revenue Systems," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1313, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    9. Antonio N. Bojanic, 2018. "The Impact of Fiscal Decentralization on Accountability, Economic Freedom, and Political and Civil Liberties in the Americas," Economies, MDPI, vol. 6(1), pages 1-20, February.
    10. Paul Smoke, 2014. "Why theory and practice are different: The gap between principles and reality in subnational revenue systems," Chapters, in: Richard M. Bird & Jorge Martinez-Vazquez (ed.), Taxation and Development: The Weakest Link?, chapter 9, pages 287-325, Edward Elgar Publishing.
    11. Grävingholt, Jörn & von Haldenwang, Christian, 2016. "The promotion of decentralisation and local governance in fragile contexts," IDOS Discussion Papers 20/2016, German Institute of Development and Sustainability (IDOS).
    12. Masaki, Takaaki, 2018. "The impact of intergovernmental transfers on local revenue generation in Sub-Saharan Africa: Evidence from Tanzania," World Development, Elsevier, vol. 106(C), pages 173-186.
    13. Kumara, Ajantha Sisira & Handapangoda, Wasana Sampath, 2014. "Political environment a ground for public sector corruption? Evidence from a cross-country analysis," MPRA Paper 54721, University Library of Munich, Germany, revised 22 Mar 2014.
    14. Keith Blackburn & Gareth Downing, 2015. "Deconcentration, Corruption and Economic Growth," Centre for Growth and Business Cycle Research Discussion Paper Series 209, Economics, The University of Manchester.
    15. Cong Minh Huynh & Hoai Nam Tran, 2021. "Moderating effects of corruption and informality on the fiscal decentralization—economic growth nexus: Insights from OECD countries," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 92(2), pages 355-373, June.
    16. Takaaki Masaki, 2016. "The impact of intergovernmental transfers on local revenue generation in Africa: Evidence from Tanzania," WIDER Working Paper Series 113, World Institute for Development Economic Research (UNU-WIDER).

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    More about this item

    Keywords

    Cross-section; Revenue decentralization; Governance;
    All these keywords.

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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