Fiscal Decentralization and Governance: A Cross-Country Analysis

31 Pages Posted: 14 Feb 2006

See all articles by Luiz R. de Mello

Luiz R. de Mello

OECD

Matias Barenstein

Government of the United States of America - Federal Trade Commission

Date Written: May 2001

Abstract

Based on cross-country data for up to 78 countries, this paper shows that fiscal decentralization-the assignment of expenditure and revenue mobilization functions to subnational levels of government-is associated with various indicators of governance, such as corruption, rule of law, and government effectiveness. Unlike previous studies in the decentralization/governance literature, which focus primarily on expenditure-based measures of decentralization, the results reported in this paper show that the relationship between decentralization and governance depends on how subnational expenditures are financed. The higher the share in total subnational revenues of nontax revenues and grants and transfers from higher levels of government, the stronger the association between decentralization and governance.

Keywords: Governance, fiscal decentralization

JEL Classification: H70, D72

Suggested Citation

de Mello, Luiz R. and Barenstein, Matias, Fiscal Decentralization and Governance: A Cross-Country Analysis (May 2001). IMF Working Paper No. 01/71, Available at SSRN: https://ssrn.com/abstract=879574

Luiz R. De Mello (Contact Author)

OECD ( email )

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+33-1-45.24.87.52 (Phone)

Matias Barenstein

Government of the United States of America - Federal Trade Commission ( email )

600 Pennsylvania Ave., NW
Washington, DC 20580
United States

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