Regional Inequality and Decentralization - An Empirical Analysis

39 Pages Posted: 12 Sep 2011

See all articles by Christian Lessmann

Christian Lessmann

Technology University of Braunschweig; Ifo Branch Dresden; CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Date Written: August 31, 2011

Abstract

This paper analyzes the impact of political and fiscal decentralization on regional inequalities using a unique data set which covers 56 countries at different stages of economic development. Cross-section and panel data estimations show that decentralization decreases regional inequalities in general. However, estimations using an interaction variable approach imply that the effect depends on the level of economic development. While rich countries benefit from decentralization with regard to a more equal regional income distribution, decentralization may lead to higher regional inequalities in developing and emerging economies. The results are pointing in the same direction for measures of fiscal and political decentralization implying that both - autonomy in decision making and fiscal authority - are decisive in this context. Thus, when fostering decentralization in developing countries - as proposed by international development agencies - the potential negative redistributional consequences should be taken into account.

Keywords: regional inequality, decentralization, panel data

JEL Classification: H110, H770, R110

Suggested Citation

Lessmann, Christian, Regional Inequality and Decentralization - An Empirical Analysis (August 31, 2011). CESifo Working Paper Series No. 3568, Available at SSRN: https://ssrn.com/abstract=1926053

Christian Lessmann (Contact Author)

Technology University of Braunschweig ( email )

Abt-Jerusalem-Str. 7
Braunschweig, D-38106
Germany

Ifo Branch Dresden ( email )

Poschinger Str. 5
Munich, 01069
Germany

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

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