New Evidence on Fiscal Decentralization and the Size of Government
33 Pages Posted: 13 Jan 2006
Date Written: December 2005
This paper adds to the literature by utilizing improved data on tax revenue decentralization to re-examine the relationship between fiscal decentralization and the size of government. An econometric analysis using panel data from 18 OECD countries shows that fiscal decentralization matters for both the size and composition of government spending. Tax revenue decentralization is associated with a smaller public sector, while expenditure decentralization is associated with a larger public sector. The former effect seems to be driven by a reduction in social security transfers, while the latter effect seems to be driven by increased government consumption.
Keywords: fiscal federalism, sub-central fiscal autonomy, government expenditures, size of government
JEL Classification: H11, H53, H77
Suggested Citation: Suggested Citation