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Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
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Fiscal Federalism and its Impact on Economic Activity, Public Investment and the Performance of Educational Systems
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- Hansjörg Blöchliger1, Balázs Égert, Kaja Bonesmo Fredriksen1
- Author Affiliations
- 1: OECD, France
- 29 May 2013
- Bibliographic information
Intergovernmental fiscal frameworks usually reflect fundamental societal choices and history and are not foremost geared towards achieving economic policy objectives. Yet, like most institutional arrangements, fiscal relations affect the behaviour of firms, households and governments and thereby economic activity. This paper presents empirical research on the potential effects of fiscal decentralisation on a set of outcomes such as GDP, productivity, public investment and school performance. The results can be summarised as follows: decentralisation, as measured by revenue or spending shares, is positively associated with GDP per capita levels. The impact seems to be stronger for revenue decentralisation than for spending decentralisation. Decentralisation is strongly and positively associated with educational outcomes as measured by international student assessments (PISA). While educational functions can be delegated either to sub-central governments (SCG) or to schools, the results suggest that both strategies appear to be equally beneficial for educational performance. Finally, investment in physical and – especially – human capital as a share of general government spending is significantly higher in more decentralised countries.
- education decentralisation, fiscal decentralisation, productivity, PISA, public investment, fiscal federalism, public spending, economic growth
- JEL Classification:
- H10: Public Economics / Structure and Scope of Government / General
- H70: Public Economics / State and Local Government ; Intergovernmental Relations / General
- H75: Public Economics / State and Local Government ; Intergovernmental Relations / State and Local Government: Health ; Education ; Welfare ; Public Pensions
- H77: Public Economics / State and Local Government ; Intergovernmental Relations / Intergovernmental Relations ; Federalism ; Secession
- I22: Health, Education, and Welfare / Education and Research Institutions / Educational Finance ; Financial Aid
- O43: Economic Development, Innovation, Technological Change, and Growth / Economic Growth and Aggregate Productivity / Institutions and Growth