The Effects of Fiscal Decentralization on Household Income Inequality: Some Empirical Evidence

31 Pages Posted: 4 Jul 2012

See all articles by Agnese Sacchi

Agnese Sacchi

Sapienza University of Rome

Simone Salotti

Oxford Brookes University

Date Written: February 22, 2012

Abstract

In this paper we investigate the effects of fiscal decentralization on income inequality using a sample of 23 OECD countries over the period 1971-2000. We utilize novel and robust measures of fiscal decentralization based on different degrees of expenditure and tax autonomy of sub-central governments. Our results highlight the importance of both the nature of fiscal decentralization - expenditure versus taxation - and the extent to which responsibility and decision powers are actually assigned to local governments. A higher degree of tax decentralization is associated with higher household income inequality within a country. This suggests that even if fiscal decentralization could be attractive according to efficiency reasons, it may actually have undesirable consequences on the equity side.

Keywords: tax decentralization, expenditure decentralization, household income inequality

JEL Classification: H70, H77, D31, R12

Suggested Citation

Sacchi, Agnese and Salotti, Simone, The Effects of Fiscal Decentralization on Household Income Inequality: Some Empirical Evidence (February 22, 2012). Available at SSRN: https://ssrn.com/abstract=2098757 or http://dx.doi.org/10.2139/ssrn.2098757

Agnese Sacchi

Sapienza University of Rome ( email )

Via del Castro Laurenziano 9
Rome, Rome 00161
Italy

Simone Salotti (Contact Author)

Oxford Brookes University ( email )

United Kingdom

HOME PAGE: http://simonesalotti.wordpress.com

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