Fiscal Decentralization and Economic Growth Reconsidered: The Role of the Institutional Setting

36 Pages Posted: 1 Jan 2014

See all articles by Andrea Filippetti

Andrea Filippetti

Italian National Research Council (CNR-ISSIRFA); London School of Economics & Political Science (LSE); University of London - Birkbeck College

Agnese Sacchi

Sapienza University of Rome

Date Written: December 30, 2013

Abstract

Most of the empirical analysis explores the relationship between fiscal decentralization and economic growth within a constitutional void. This paper investigates the connection between fiscal decentralization and income growth across different institutional settings in 20 OECD countries over the period 1973-2007. We find that the pro-growth effects of tax decentralization depend critically on the nature of the administrative institutions and political system in place: fiscal decentralization leads to higher (lower) rates of economic growth when coupled with high (low) administrative and high (low) political decentralization. This provides evidence of institutional complementarities at work, as well as new insights on how local tax structures should be designed and combined with administrative and political settings to support economic growth.

Keywords: Fiscal decentralization; Institutions; Political decentralization; Economic growth; Comparative studies

JEL Classification: H71, H77, O43, O57

Suggested Citation

Filippetti, Andrea and Sacchi, Agnese, Fiscal Decentralization and Economic Growth Reconsidered: The Role of the Institutional Setting (December 30, 2013). Available at SSRN: https://ssrn.com/abstract=2373164 or http://dx.doi.org/10.2139/ssrn.2373164

Andrea Filippetti (Contact Author)

Italian National Research Council (CNR-ISSIRFA) ( email )

Via dei Taurini, 19
00185 Rome
Italy

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

University of London - Birkbeck College ( email )

Malet Street
London, WC1E 7HX
United Kingdom

Agnese Sacchi

Sapienza University of Rome ( email )

Via del Castro Laurenziano 9
Rome, Rome 00161
Italy

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