OECD Working Papers on Fiscal Federalism

ISSN :
2226-5848 (online)
DOI :
10.1787/22265848
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The Fiscal Federalism Working Paper series covers issues related to intergovernmental fiscal relations and local/regional public finance, such as: tax and spending assignment across government levels; intergovernmental grants; fiscal equalization; local and regional public service efficiency; inter-jurisdictional tax competition; and macroeconomic issues such as intergovernmental fiscal management and sub-central fiscal rules.
Note. Nos 1, 6 and 8 are available in OECD Economics Department Working Papers, as Nos 465, 626 and 705.
 

Decentralisation and Economic Growth - Part 2: The Impact on Economic Activity, Productivity and Investment You or your institution have access to this content

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Author(s):
Hansjörg Blöchliger1, Balázs Égert1
Author Affiliations
  • 1: OECD, France

Publication Date
03 June 2013
Bibliographic information
No.:
15
Pages
25
DOI
10.1787/5k4559gp7pzw-en

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This paper analyses the relationship between fiscal decentralisation and economic activity. Like other institutional arrangements, fiscal decentralisation affects firms, households and public entities, and the way they save, invest, spend or innovate. This in turn may have considerable consequences for the long-term growth potential of a country. Based on a set of growth regressions, the results suggest that the relationship between fiscal decentralisation and GDP per capita, productivity or human capital is positive and statistically significant, while the relationship with investment is insignificant. Doubling the sub-central tax or spending share (e.g. moving from a decentralisation ratio of 15 to 30%) is associated with an increase of GDP per capita by 3% on average. Revenue-based decentralisation indicators (e.g. decentralisation of tax revenue or tax autonomy) deliver results both statistically and economically (larger coefficients) more significant than spending-based indicators. The results vary little between federal and unitary countries in general. Intergovernmental transfers tend to be negatively associated with GDP per capita. Finally, the relationship between decentralisation and GDP per capita is non-linear, with results suggesting that returns to decentralisation are decreasing.
Keywords:
fiscal decentralisation, fiscal federalism, productivity, economic growth
JEL Classification:
  • H70: Public Economics / State and Local Government; Intergovernmental Relations / General
  • H77: Public Economics / State and Local Government; Intergovernmental Relations / Intergovernmental Relations; Federalism; Secession
  • O43: Economic Development, Technological Change, and Growth / Economic Growth and Aggregate Productivity / Institutions and Growth