Who Gets What from Whom? The Impact of Decentralisation on Tax Capacity and Social Spending

Abstract

This project studies patterns of decentralisation and public finance in 68 countries where local and national statistics are available. Six indicators of decentralisation are clustered around fiscal, administrative and political dimensions, and these dimensions had independent and surprising relationships with the resources governments collected and what they did with their money. First, politically decentralised regimes taxed less overall and spent less on social policies. Second, administrative decentralisation showed a positive impact on social policies, but neither administrative nor fiscal decentralisation had a systematic relationship to tax capacity. These results suggest that multi-level governance might best be pursued in a partial fashion. Political centralisation may favour the actors and interests that seek large amounts of progressive public action, while administrative decentralisation may allow competition, information and innovation to lead to efficient and effective public policies. Other things being equal, political centralisation and administrative decentralisation may achieve high levels of effective, efficient and redistributive public action.