Does fiscal decentralization improve health outcomes? Evidence from infant mortality in Italy

Abstract

Despite financial and decision-making responsibilities having been increasingly devolved to lower levels of government worldwide, the potential impact of these reforms remains largely controversial. This paper investigates the hypothesis that a shift towards a higher degree of fiscal autonomy of sub-national governments could improve health outcomes, as measured by infant mortality rates. Italy is used as a case study since responsibilities for healthcare have been decentralized to regions, though the central government still retains a key role in ensuring all citizens uniform access to health services throughout the country. A linear fixed-effects regression model with robust standard errors is employed for a panel of 20 regions over the period 1996–2012 (340 observations in the full sample). Decentralization is proxied by two different indicators, capturing the degree of decision-making autonomy in the allocation of tax revenues and the extent to which regions rely on fiscal transfers from the central government. The results show that a higher proportion of tax revenues raised and/or controlled locally as well as a lower transfer dependency from the central government are consistently associated with lower infant mortality rates, ceteris paribus. The marginal benefit from fiscal decentralization, however, is not constant but depends on the level of regional wealth, favouring poorest regions. In terms of policy implications, this study outlines how the effectiveness of decentralization in improving health outcomes is contingent on the characteristics of the context in which the process takes place.