Fiscal Decentralization and Governance: A Cross-Country Analysis

Fiscal Decentralization and Governance: A Cross-Country Analysis

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Based on cross-country data for up to 78 countries, this paper shows that fiscal decentralization-the assignment of expenditure and revenue mobilization functions to subnational levels of government-is associated with various indicators of governance, such as corruption, rule of law, and government effectiveness. Unlike previous studies in the decentralization/governance literature, which focus primarily on expenditure-based measures of decentralization, the results reported in this paper show that the relationship between decentralization and governance depends on how subnational expenditures are financed. The higher the share in total subnational revenues of nontax revenues and grants and transfers from higher levels of government, the stronger the association between decentralization and governance.Typically, there is a trade-off between the cross-country and the time-series dimensions of the data. For instance, the widely used corruption indicator constructed by the International Country Risk Guide (ICRG) is available for the post- 1 982anbsp;...

Title:Fiscal Decentralization and Governance: A Cross-Country Analysis
Author:Luiz de Mello, Matias Barenstein
Publisher:International Monetary Fund - 2001-05-01


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