Decentralization and Political Institutions
CEFIR Working Paper
43 Pages Posted: 13 Jul 2006 Last revised: 12 Jan 2011
There are 2 versions of this paper
Decentralization and Political Institutions
Date Written: November 1, 2006
Abstract
Does fiscal decentralization lead to more efficient governance, better public goods, and higher economic growth? This paper tests Riker''s theory (1964) that the results of fiscal decentralization depend on the level of countries'' political centralization. We analyze crosssection and panel data from up to 75 developing and transition countries for 25 years. Two of Riker''s predictions about the role of political institutions in disciplining fiscally-autonomous local politicians are confirmed by the data. 1) Strength of national political parties significantly improves outcomes of fiscal decentralization such as economic growth, quality of government, and public goods provision. 2) In contrast, administrative subordination (i.e., appointing local politicians rather than electing them) does not improve the results of fiscal decentralization.
Keywords: decentralization, political institutions, parties, quality of government, growth
JEL Classification: H1''8 H4''8 H70
Suggested Citation: Suggested Citation
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