Does Fiscal Decentralisation Foster Regional Investment in Productive Infrastructure?

33 Pages Posted: 3 May 2012

See all articles by Andreas Kappeler

Andreas Kappeler

European Investment Bank

Albert Sole-Olle

University of Barcelona; CESifo (Center for Economic Studies and Ifo Institute)

Andreas Stephan

DIW Berlin, German Institute for Economic Research

Timo T. Välilä

European Investment Bank; University College London the Bartlett School of CPM

Date Written: April 1, 2012

Abstract

The aim of this paper is to analyze the effect of revenue decentralization on the provision of infrastructure at the sub-national level. We estimate the effects of revenue decentralization and earmarked grant financing on the level of sub-national infrastructure investment in 20 European countries over the period 1990-2009. The results are interpreted in light of the predictions of the theory on fiscal federalism. We find that it is sub-national infrastructure investment that increases after revenue decentralization and not investment in redistribution. However, the effect of revenue decentralization is lower the higher the use of earmarked grants to fund infrastructure investment.

Keywords: regional investment, fiscal federalism, dynamic panel data

JEL Classification: H54, H77, H76, C23

Suggested Citation

Kappeler, Andreas and Sole-Olle, Albert and Stephan, Andreas and Välilä, Timo T., Does Fiscal Decentralisation Foster Regional Investment in Productive Infrastructure? (April 1, 2012). DIW Berlin Discussion Paper No. 1204. Available at SSRN: https://ssrn.com/abstract=2050355 or http://dx.doi.org/10.2139/ssrn.2050355

Andreas Kappeler (Contact Author)

European Investment Bank ( email )

98-100 Boulevard Konrad Adenauer
L-2950
Luxembourg

Albert Sole-Olle

University of Barcelona ( email )

Gran Via de les Corts Catalanes, 585
Barcelona, 08007
Spain

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Andreas Stephan

DIW Berlin, German Institute for Economic Research ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Timo T. Välilä

European Investment Bank ( email )

98-100 Boulevard Konrad Adenauer
L-2950
Luxembourg

University College London the Bartlett School of CPM ( email )

Gower Street
London, WC1E 6BT
United Kingdom

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