Grupos de Investigación

DT 03/13 - Fiscal decentralization and regional disparities: The importance of good governance

ISSNISSN/ISBN: 1510-9305 / 1688-5090
AutorAutor/es: Muinelo, Leonel, Kyriacou, Andreas P. ; Roca-Sagalés, Oriol
Nº de PáginasNº de Páginas: 32
In this paper we consider how government quality mediates the relationship between
fiscal decentralization and regional disparities. Previous work has argued that fiscal
decentralization has the potential to reduce income difference across regions but that
this potential may not be realized because of governance problems associated with subnational
authorities. Our empirical evidence based on a sample of 24 OECD countries
over the period 1984 to 2006 lends a measure of support to this idea. We find that fiscal
decentralization promotes regional convergence in high government quality settings but,
worryingly, it leads to wider regional disparities in countries with poor governance.
Because most poor countries are plagued with governance problems, this would caution
against fiscal decentralization with a view to reducing regional disparities in these
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