Rethinking corruption on fiscal decentralization and global competitiveness Nexus

Abstract

PurposeThis study investigates the effects of fiscal decentralization on global competitiveness through the level of corruption. This study aims to clarify the causal impacts of fiscal decentralization policy on the achievement of competitiveness rank considering the degree of corruption in a country.Design/methodology/approachThe paper uses an empirical study using both cross-country arithmetic mean and panel data, covering ten-year period (2005-2014). The analysis uses both linear and non-linear specification in search of actual intermediating effects of corruption with controlling the possible endogeneity.FindingsThe paper provides empirical insights about corruption effects of fiscal decentralization on global competitiveness. It suggests that increasing level of fiscal decentralization has a positive contribution to competitiveness for the less-corrupt countries. The adverse effects appear for corrupt countries where the delegation of fiscal authority should endanger the country competitiveness.Research limitations/implicationsThis research exploits the well-known measurement of fiscal decentralization, the degree of corruption and competitiveness. Therefore, this measurement might be challenged for representing the real concept of decentralization, corruption and competitiveness, furthermore its relationship. Despite the limitation, this research explores the entanglement of fiscal decentralization, corruption and competitiveness.Practical implicationsThe paper provides the implications for the national policymakers about decentralizing the fiscal authority to achieve higher competitiveness level, through assessing their state of corruption.Originality/valueThe research provides additional comments for Oates’ (1972) decentralization theorem in connection to competitiveness, by adding corruption level as pre-requisite condition.