1,721,114 research outputs found
A comprehensive analysis of expenditure decentralization and of the composition of local public spending
No full textMany industrialized countries have recently implemented fiscal decentralization reforms assigning more spending responsibility to sub-national governments. This paper investigates the causes of the decentralization of different categories of public expenditure in 19 developed countries over the period 1980–2006. Different models for each of the spending functions under analysis are estimated adopting a general-to-specific empirical approach. Results confirm existing findings on the negative link between regional income disparities and expenditure decentralization. A similarly negative relationship is found for a set of demographic variables, leading to the conclusion that macroeconomic and, more importantly, political factors are responsible for the recent increase in decentralization. Finally, the analysis is completed by a study of the factors driving sub-national expenditure composition, with political and demographic changes emerging as the most important determinants
Cross-country evidence on the distributional impact of fiscal policy
No full textThis article provides new evidence on the distributional effects of fiscal policy using data on a panel of OECD economies over the last four decades. We study how four measures of income inequality and poverty respond to several stock and flow variables accounting for fiscal actions. We find that increases in government debt and expenditure promote a less unequal distribution of income. We detect a significant distributional impact of education and social spending as well as of government consumption expenditure. We also investigate potential redistributive implications of large fiscal expansion and consolidation episodes finding no evidence of additional effects beyond those associated with conventional fiscal variables
How regional inequality affects fiscal decentralisation. Accounting for the autonomy of subcentral governments
No full textThe aim of this paper is to analyse the influence of regional economic disparities on the fiscal decentralisation processes in twenty-one OECD countries over the period 1981 to 2005. We use novel and robust measures of fiscal decentralisation based on different degrees of autonomy over both expenditures and taxes granted to subcentral governments. Our results show that high regional economic disparities call for lower fiscal decentralisation. This could be interpreted as the outcome of a bargaining process driven by the relative strength and different incentives of rich and poor regions. Moreover, the extent to which responsibility and decision powers are really left to subcentral governments appears to be crucial. Thus, from a positive point of view, equity considerations seem to suggest avoidance of fiscal decentralisation processes in countries with significant regional economic disparities, notwithstanding the well-known efficiency gains
The impact of national fiscal rules on the stabilisation function of fiscal policy
Full text linkWe study the relationship between discretionary fiscal policy and macroeconomic stability in 21 OECD countries over the 1985-2012 period. The novelties of our contribution lie in the use of annual panel data, whereas most of the existing evidence is cross-sectional, and more importantly in the thorough investigation of how fiscal rules affect the policy-macroeconomic stability relationship. We find that the aggressive use of discretionary fiscal policy, particularly of government consumption items, leads to higher volatility of both output and inflation. However, when strict fiscal rules are introduced, discretionary policy becomes output-stabilising rather than destabilising. This result can be more easily achieved by rules on balanced budgets, rather than on expenditures, revenues, or debt. On the other hand, fiscal rules are unable to affect the inflation-destabilising nature of discretionary policy, probably because of the higher importance of central banks in that respect
The Effects of Fiscal Decentralization on Household Income Inequality: Some Empirical Evidence
No full textThe influence of decentralized taxes and intergovernmental grants on local spending volatility
No full textThis paper studies what affects the volatility of sub-central public spending in 20 Organisation for Economic Co-operation and
Development (OECD) countries. The evidence based on data from 1972 to 2007 shows that the volatility of intergovernmental grants from upper levels is positively associated with the volatility of local expenditure. On the other hand, the volatility of local tax revenues – mainly that of property taxes – exerts the opposite effect. These findings suggest that making local governments rely more on grants than own tax revenues adversely affects their spending stability. Allowing them to levy autonomously taxes relying on responsive tax bases provides incentives to smooth their expenditure
The Impact of Government Debt, Expenditure and Taxes on Aggregate Investment and Productivity Growth
No full textIn this paper we evaluate empirically the impact of fiscal policy on two key determinants
of long-term growth, i.e., private investment and productivity growth. We mostly focus on a
panel of 20 OECD economies from 1970 to 2009, although we also present some estimates based
on data for 80 developing economies. Our findings suggest that high public debt adversely
affects both aggregate investment spending and productivity growth, through distortions related
to the size of the public sector. We also find weak evidence of some nonlinear effects on
productivity, with government debt becoming more detrimental when above 85-90% of GDP
in advanded economies
Fiscal adjustment, decentralisation and sub-national autonomy
No full textThis paper studies the relationship between fiscal decentralisation and the duration of the fiscal consolidation episodes in 17 OECD countries between 1978 and 2009. It appears that consolidation lasts longer when expenditure decentralisation is higher. The paper also finds that transfers from higher levels of government are reduced during consolidation episodes. This suggests that, given a certain institutional structure within the country, central governments are able to shift the burden of consolidation towards lower tiers of government by reducing intergovernmental transfers. This is particularly the case when sub-national governments have little legal autonomy to raise tax revenues and cannot affect executive decisions taken at the central level
Fiscal decentralization in times of financial crises
No full textThe virtues of fiscal decentralization are usually assessed against the provision of local public goods; little is said about its impact on public finances. There is a growing concern that public finances may be negatively affected when spending and taxing powers are delegated to subnational tiers of government, especially under adverse financial conditions. Our work proves that these concerns are unfounded. The empirical investigation on 19 Organisation for Economic Co-operation and Development countries over the period 1980–2010 shows that the budget balances of central and local governments do not get worse with fiscal decentralization. Moreover, during banking crises expenditure decentralization seems to be beneficial, as the central government can easily shift resources from intergovernmental grants to financing public policies necessary to tackle the crisis. In turn, more subnational tax autonomy would improve the budget of all tiers of government, suggesting that more ‘effective’ tax decentralization increases fiscal discipline also in times of financial distress
Decentralization and the duration of fiscal consolidation. Shifting the burden across layers of government
Full text linkThis paper analyzes the relationship between fiscal decentralization, the duration of fiscal consolidation episodes, and their success for 17OECDcountries between 1978 and 2009. The consolidation of the general government budget appears to be of longer durationwhen expenditure decisions are more decentralized.We also find that transfers from higher levels of government are
cut during consolidation episodes, suggesting that central governments shift the burden of consolidation towards lower tiers of government. This is especially true when the latter have little legal autonomy to raise tax revenues and have little influence over executive decisions taken at the central level. We document that this increases local governments’ public debt/GDP ratios. In terms of the success of consolidation episodes, countrieswith greater degrees of decentralization appear to make smaller improvements in their primary balance when consolidating
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