Decentralisation and inclusive growth: Channels and implications

Abstract

This chapter discusses the relationship between intergovernmental fiscal frameworks and inclusive growth, encompassing the several channels through which such a relationship could take place. The key variables directly affected by the decentralisation process are economic variables such as gross domestic product (GDP) and its distribution but also other social outcomes, such as educational attainment. All of these contribute to shaping economic growth and its inclusiveness. Inclusiveness means that the gains from growth in economic output, income or other forms of material well-being benefit all members of society. This includes all parts of a country, e.g. growth in a territory as well as the distribution of income across territories. In this context, sub-central and central authorities can contribute to inclusiveness within a country, contributing to an even distribution of economic gains across jurisdictions and income groups, ultimately enhancing well-being for all. Moreover, the quality of the public sector also depends on how responsibilities and functions are shared between government levels. The issue at stake is that the design of fiscal decentralisation does matter for inclusive growth.