Decentralization and regional economic disparities

Abstract

This paper analyses the impact of both fiscal and political decentralisation on regional productivity inequalities. The study of the influence of decentralisation on economic growth has received some attention in recent years, but very few studies deal with its impact on regional inequalities, both theoretically and empirically. In this paper, we analyse the relationship between different measures of regional inequalities in productivity, and several measures of political and fiscal decentralisation for a sample of 15 OECD countries. In order to control for other possible influences, we have also include in the analysis measures of public sector size and the type of party government. The results suggest a strong negative correlation between decentralisation, mainly fiscal decentralisation, and regional inequalities. Of course, much more analysis must be done before we can demonstrate such relationship. We hope that this paper will stimulate further research.