Fiscal decentralization in specific areas of government: an empirical evaluation using country panel data

Abstract

While there is an extensive list of publications to explain fiscal decentralization across countries and over time, with this being defined as the share of all subnational government expenditure compared with that of the general government, a vacuum still exists when it comes to a similar analysis for the separate functions of the state. This research addresses that challenge by estimating an empirical model that explains the fiscal decentralization of six specific public goods. Since the data available from the International Monetary Fund, as well as from other sources, are incomplete, an imputation procedure is conducted in order to produce a balanced panel of forty-four countries. As opposed to studies based on subnational expenditure as a whole, our results suggest that, generally, fiscal decentralization does not exhibit the same pattern across specific government functions. This entails important policy lessons, as it suggests that fiscal decentralization should not be seen as an all-across-the-board strategy to modernize the state.