Fiscal Decentralization and Economic Growth in Central and Eastern Europe

The majority of the literature on fiscal decentralization has tended to stress that the greater capacity of decentralized governments to tailor policies to local preferences and to be innovative in the provision of policies and public services, the greater the potential for economic efficiency and g...

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Main Authors:	Rodriguez-Pose, Andres, Kroijer, Anne
Format:	Journal Article
Language:	EN
Published:	2012
Subjects:	State and Local Government Intergovernmental Relations: Interjurisdictional Differentials and Their Effects H730 Intergovernmental Relations Federalism Secession H770 Measurement of Economic Growth Aggregate Productivity Cross-Country Output Convergence O470 Socialist Systems and Transitional Economies: National Income, Product, and Expenditure Money Inflation P240 Socialist Systems and Transitional Economies: Urban, Rural, and Regional Economics P250 Socialist Institutions and Their Transitions: Public Economics P350
Online Access:	http://hdl.handle.net/10986/4897

id	okr-10986-4897
recordtype	oai_dc
spelling	okr-10986-48972021-04-23T14:02:20Z Fiscal Decentralization and Economic Growth in Central and Eastern Europe Rodriguez-Pose, Andres Kroijer, Anne State and Local Government Intergovernmental Relations: Interjurisdictional Differentials and Their Effects H730 Intergovernmental Relations Federalism Secession H770 Measurement of Economic Growth Aggregate Productivity Cross-Country Output Convergence O470 Socialist Systems and Transitional Economies: National Income, Product, and Expenditure Money Inflation P240 Socialist Systems and Transitional Economies: Urban, Rural, and Regional Economics P250 Socialist Institutions and Their Transitions: Public Economics P350 The majority of the literature on fiscal decentralization has tended to stress that the greater capacity of decentralized governments to tailor policies to local preferences and to be innovative in the provision of policies and public services, the greater the potential for economic efficiency and growth. There is, however, little empirical evidence to substantiate this claim. In this paper we examine, using a panel data approach with dynamic effects, the relationship between the level of fiscal decentralization and economic growth rates across 16 Central and Eastern European countries over the 1990-2004 period. Our findings suggest that, contrary to the majority view, there is a significant negative relationship between two out of three fiscal decentralization indicators included in the analysis and economic growth. However, the use of different time lags allows us to nuance this negative view and show that long-term effects vary depending on the type of decentralization undertaken in each of the countries considered. While expenditure at and transfers to sub-national tiers of government are negatively correlated with economic growth, taxes assigned at the sub-national level evolve from having a significantly negative to a significantly positive correlation with the national growth rate. This supports the view that sub-national governments with their own revenue source respond better to local demands and promote greater economic efficiency. 2012-03-30T07:30:16Z 2012-03-30T07:30:16Z 2009 Journal Article Growth and Change 00174815 http://hdl.handle.net/10986/4897 EN http://creativecommons.org/licenses/by-nc-nd/3.0/igo World Bank Journal Article
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	EN
topic	State and Local Government Intergovernmental Relations: Interjurisdictional Differentials and Their Effects H730 Intergovernmental Relations Federalism Secession H770 Measurement of Economic Growth Aggregate Productivity Cross-Country Output Convergence O470 Socialist Systems and Transitional Economies: National Income, Product, and Expenditure Money Inflation P240 Socialist Systems and Transitional Economies: Urban, Rural, and Regional Economics P250 Socialist Institutions and Their Transitions: Public Economics P350
spellingShingle	State and Local Government Intergovernmental Relations: Interjurisdictional Differentials and Their Effects H730 Intergovernmental Relations Federalism Secession H770 Measurement of Economic Growth Aggregate Productivity Cross-Country Output Convergence O470 Socialist Systems and Transitional Economies: National Income, Product, and Expenditure Money Inflation P240 Socialist Systems and Transitional Economies: Urban, Rural, and Regional Economics P250 Socialist Institutions and Their Transitions: Public Economics P350 Rodriguez-Pose, Andres Kroijer, Anne Fiscal Decentralization and Economic Growth in Central and Eastern Europe
relation	http://creativecommons.org/licenses/by-nc-nd/3.0/igo
description	The majority of the literature on fiscal decentralization has tended to stress that the greater capacity of decentralized governments to tailor policies to local preferences and to be innovative in the provision of policies and public services, the greater the potential for economic efficiency and growth. There is, however, little empirical evidence to substantiate this claim. In this paper we examine, using a panel data approach with dynamic effects, the relationship between the level of fiscal decentralization and economic growth rates across 16 Central and Eastern European countries over the 1990-2004 period. Our findings suggest that, contrary to the majority view, there is a significant negative relationship between two out of three fiscal decentralization indicators included in the analysis and economic growth. However, the use of different time lags allows us to nuance this negative view and show that long-term effects vary depending on the type of decentralization undertaken in each of the countries considered. While expenditure at and transfers to sub-national tiers of government are negatively correlated with economic growth, taxes assigned at the sub-national level evolve from having a significantly negative to a significantly positive correlation with the national growth rate. This supports the view that sub-national governments with their own revenue source respond better to local demands and promote greater economic efficiency.
format	Journal Article
author	Rodriguez-Pose, Andres Kroijer, Anne
author_facet	Rodriguez-Pose, Andres Kroijer, Anne
author_sort	Rodriguez-Pose, Andres
title	Fiscal Decentralization and Economic Growth in Central and Eastern Europe
title_short	Fiscal Decentralization and Economic Growth in Central and Eastern Europe
title_full	Fiscal Decentralization and Economic Growth in Central and Eastern Europe
title_fullStr	Fiscal Decentralization and Economic Growth in Central and Eastern Europe
title_full_unstemmed	Fiscal Decentralization and Economic Growth in Central and Eastern Europe
title_sort	fiscal decentralization and economic growth in central and eastern europe
publishDate	2012
url	http://hdl.handle.net/10986/4897
_version_	1764393156697128960

Fiscal Decentralization and Economic Growth in Central and Eastern Europe

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