Revisiting the Link between Growth and Federalism: A Bayesian Model Averaging Approach

Following the ambiguous results in the literature aimed at understanding the empirical link between fiscal federalism and economic growth, this paper revisits the question using a Bayesian Model Averaging approach. The analysis suggests that the failure to appropriately account for model uncertainty may have previously led to biased estimates. The results from a sample of 23 OECD countries over 1975-2000 indicate that after controlling for unobserved country heterogeneity, there is no robust link, neither positive, nor negative, between output growth and fiscal federalism (measured as sub-national governments' share of own source tax revenue).

Keywords: Fiscal Federalism, Economic Growth, Bayesian Model Averaging

JEL Classification: C11, H70, O43

Suggested Citation: Suggested Citation

Asatryan, Zareh and Feld, Lars P., Revisiting the Link between Growth and Federalism: A Bayesian Model Averaging Approach (July 15, 2013). ZEW - Centre for European Economic Research Discussion Paper No. 13-049, Available at SSRN: https://ssrn.com/abstract=2305998 or http://dx.doi.org/10.2139/ssrn.2305998