Partial Fiscal Decentralization and Sub-National Government Fiscal Discipline: Empirical Evidence from OECD Countries

27 Pages Posted: 13 Apr 2015

See all articles by Zareh Asatryan

Zareh Asatryan

ZEW – Leibniz Centre for European Economic Research; University of Freiburg

Lars P. Feld

Walter Eucken Institute

Benny Geys

BI Norwegian Business School; Vrije Universiteit Brussel (VUB) - Applied Economics Department

Date Written: March 31, 2015

Abstract

Recent theoretical research suggests that financing sub-national governments’ expenditure out of own revenue sources is linked to more responsible budgeting, because the financial implications of spending decisions then are internalized within a jurisdiction. We test this proposition empirically on a sample of 23 OECD countries over the 1975-2000 period, and find evidence in line with the hypothesis that greater revenue decentralization (measured as sub-national governments’ share of own source tax revenues in general government tax revenue) is associated with improved sub-national government budget deficits/surpluses. This finding is cross-validated with a novel, independent dataset consisting of all 34 OECD member states from 2002 to 2008.

Keywords: fiscal federalism, revenue autonomy, budget deficits

JEL Classification: H620, H710, H770, E610

Suggested Citation

Asatryan, Zareh and Feld, Lars P. and Geys, Benny, Partial Fiscal Decentralization and Sub-National Government Fiscal Discipline: Empirical Evidence from OECD Countries (March 31, 2015). CESifo Working Paper Series No. 5279, Available at SSRN: https://ssrn.com/abstract=2593698

Zareh Asatryan

ZEW – Leibniz Centre for European Economic Research ( email )

L7
1
Mannheim, 68161
Germany

University of Freiburg ( email )

Albert-Ludwigs-Universität Freiburg, Wirtscha.inf.
Kollegiengebäude II, Platz der Alten Synagoge
Freiburg im Breisgau, 79098
Germany

Lars P. Feld (Contact Author)

Walter Eucken Institute ( email )

Goethestrasse 10
Freiburg im Breisgau, Baden-Württemberg D-79100
Germany

Benny Geys

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Vrije Universiteit Brussel (VUB) - Applied Economics Department ( email )

Pleinlaan 2
1040 Etterbeek
Brussel, CA 1040
Belgium

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