OECD Working Papers on Fiscal Federalism

This 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. Many of these working papers are outputs of the OECD Network on Fiscal Relations Across Levels of Government. Related working papers on fiscal federalism issues are also published in other OECD working paper series on tax policy, economics, public governance and regional development. An integrated list of key papers produced by the Fiscal Network can be found at http://oe.cd/fiscalnetwork.

(Note: numbers 1, 6 and 8 are available in the OECD Economics Department Working Papers, as numbers 465, 626 and 705.)


Decentralisation and Economic Growth - Part 3: Decentralisation, Infrastructure Investment and Educational Performance

Theories of fiscal competition between jurisdictions suggest that investment in productive relative to consumptive spending is higher in a decentralised setting, and that efficiency of the public sector is also higher. This paper empirically analyses the link between decentralisation and the composition of public spending as well as the relation between decentralisation and educational performance. The results suggest that fiscal decentralisation increases the share of public funds directed to capital spending and that the bulk of this shift is due to higher education spending. Using an education production function approach and PISA results (Programme of International Student Assessment) as an indicator of educational output, the results suggest that educational performance is significantly higher in decentralised countries, even when controlling for spending and other variables affecting education. A 10% point increase in decentralisation increases educational performance by four PISA points, thereby improving the PISA ranking by around four country positions on average. Decentralisation to lower government levels and decentralisation to the school level (school autonomy) have a similar impact on educational performance.


Keywords: PISA, education decentralisation, fiscal federalism, fiscal decentralisation, public investment
JEL: I22: Health, Education, and Welfare / Education and Research Institutions / Educational Finance; Financial Aid; H75: Public Economics / State and Local Government; Intergovernmental Relations / State and Local Government: Health; Education; Welfare; Public Pensions; H11: Public Economics / Structure and Scope of Government / Structure, Scope, and Performance of Government
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