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Fiscal Decentralisation and Inclusive Growth

image of Fiscal Decentralisation and Inclusive Growth

Intergovernmental fiscal frameworks, as considered by the OECD Network on Fiscal Relations Across Levels of Government, are a core driver of inclusive growth. Certain institutions and policies can contribute to a more equitable distribution of economic gains across jurisdictions and income groups, such as equalisation systems. In particular, the quality of public sector outcomes depends on how responsibilities and functions such as education or health care are shared across government levels. This implies that intergovernmental fiscal frameworks, which drive the division of roles of the central and sub-national governments, critically influence growth and the inclusiveness of an economy. This book brings together academics and practitioners to address key aspects of intergovernmental fiscal relations and country experience, as they relate to inclusive growth.

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Globalisation, decentralisation and inclusive growth

This chapter extends the analysis of decentralisation and inclusive growth to capture the role of globalisation. Country specificities turn out to matter: while countries have already decentralised spending and revenues more than enough given their openness and scale, other countries are excessively centralised given their fiscal profile, and these would benefit from more decentralisation. Depending on a country’s characteristics and its public finance mix, the scope for further improvements of both growth and equity outcomes varies widely. Spending and revenue decentralisation tend to boost economic growth for economies that have a relatively higher degree of trade openness. Fiscal decentralisation has a more ambiguous and possibly even negative effect on inequality than on growth, especially for economies with a higher degree of globalisation. Moreover, for some countries, there is an apparent trade-off between growth and equity, when it comes to the “optimal” degree of spending and revenue decentralisation.

English

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