Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/300060 
Year of Publication: 
2024
Series/Report no.: 
CESifo Working Paper No. 11132
Publisher: 
CESifo GmbH, Munich
Abstract: 
This paper explores the nuanced relationship between fiscal decentralization and fiscal sustainability. Employing panel data analyses, it scrutinizes how decentralization influences fiscal discipline across different governmental levels. Results for 185 countries show that while tax decentralization often hampers the degree of fiscal responsiveness, potentially due to misaligned local and national objectives and loss of scale efficiency, spending decentralization can enhance fiscal outcomes by promoting efficient resource allocation. These findings are contextualized within a broad range of economic and political environments, highlighting that the impacts of decentralization are contingent upon local capacities and overarching governance frameworks. Hence, we contribute to the understanding of fiscal policies' complexity in decentralized systems and offer significant policy insights for fiscal sustainability in varied administrative contexts.
Subjects: 
panel data analysis
fiscal sustainability
decentralization
fiscal rules
political cycles
time-varying coefficients
JEL: 
H11
H77
H72
H73
E62
C23
Document Type: 
Working Paper
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