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Decentralization and fiscal performance in Central and Eastern Europe

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  • Makreshanska, Suzana
  • Petrevski, Goran

Abstract

The paper provides empirical evidence on the association between decentralization and fiscal performance of the general government on a panel of 11 former transition countries during 1996-2012, controlling for the effects of various demographic, institutional, and macroeconomic variables. Also, for robustness check we make a comparison with a panel of 18 industrialized European economies. The main findings from the empirical investigation suggest that decentralizing government activities in Central and Eastern Europe leads to an increase in the efficiency in the provision of public goods. Also, we show that not only the extent of fiscal decentralization, but the composition of local revenue, too, matters for fiscal discipline. In these regards, providing local governments with higher autonomy in financing their activities by relying more on their “own” tax revenues instead of intergovernmental grants seems to be conducive with fiscal discipline. In contrast to the sample consisting of the former transition economies, we cannot find evidence on the association between decentralization and fiscal discipline in the developed European countries.

Suggested Citation

  • Makreshanska, Suzana & Petrevski, Goran, 2016. "Decentralization and fiscal performance in Central and Eastern Europe," MPRA Paper 79630, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:79630
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    References listed on IDEAS

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    More about this item

    Keywords

    Fiscal decentralization; Budget deficits; Central and Eastern Europe; Panel data models;
    All these keywords.

    JEL classification:

    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H76 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Other Expenditure Categories
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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