Why Countries are Fiscally Decentralizing
Posted: 14 Jul 2011
Date Written: 2005
This paper models and empirically investigates underlying forces that promote governmental decentralization, or effective federalism, in the world over the last 25 years. A move to a federal system is based on the demand by hinterland regions for local autonomy, which increases with national income growth, greater relative hinterland population, and increasing national population. It is influenced as well by the degree of democratization nationally and locally. Decentralization is measured by both institutional indices indicating greater devolution of power to local governments and the share of local governments in national government consumption. Empirically, the paper finds that decentralization changes in ways predicted, in particular it increases with economic growth, country size, and population. Institutional structures based on colonial experience and initial constitutional provisions also matter.
Keywords: Fiscal decentralization, Federal constitution, National democratization
JEL Classification: E62, D72
Suggested Citation: Suggested Citation