Expenditure Decentralization Research Articles

Family benefits public spending: Centralization or decentralization?

In order to overcome negative demographic trends in the Russian Federation, measures to stimulate the birth rate have been developed and financed at the federal and sub-federal levels. At the moment, on the one hand, there is a tendency to centralize expenditures for these purposes at the federal level, on the other hand, the coverage of the subjects of the Russian Federation, which introduce sub-federal (subnational) maternity capital (SMC), is expanding. The study was recognized to answer the question: whether the widespread introduction of SMC is justified, whether the effect of its use depends on the level of subsidization of the region and the degree of decentralization of expenditures.

Fiscal policy for economic growth and environmental quality: insights from Pakistan’s fiscal decentralization

Fiscal decentralization is perceived as a viable strategy for fostering economic growth in Pakistan. Concerns persist regarding its potential impact on environmental quality, particularly in relation to increased carbon emissions. Employing diverse analytical methods such as structural vector autoregressive (SVAR) modeling and autoregressive moving average model evaluations, this study comprehensively explores the dynamic relationships among fiscal decentralization, economic development, and environmental quality over the period 1979–2019. Intriguing trends emerge, revealing positive correlations between environmental efficiency and variables, including revenue collection, tax autonomy, and transfer payments. Conversely, a negative correlation is observed between government spending and economic growth. The interplay of these variables results in oscillations in the influence of fiscal decentralization on carbon emissions, presenting a complex challenge for policymakers. Notably, positive fiscal decentralization shocks lead to an increase in carbon emissions, while positive expenditure decentralization and economic development correlate with decreased carbon emissions. Despite economic growth's statistically significant negative impact on carbon emissions, the intricate nature of the relationships underscores the complexity of the link between fiscal decentralization, economic expansion, and environmental outcomes. From a policy perspective, the study emphasizes the need to adjust fiscal policies and coordinate intergovernmental fiscal ties across all government levels to enhance environmental efficiency. These findings provide policymakers with valuable insights to navigate the intricate landscape of fiscal decentralization and its environmental implications.

Impacts of fiscal decentralization on performance of local government expenditure: Evidence from Vietnam

This article aims to examine the impact of fiscal decentralization on the performance of local government expenditure in Vietnam. By using a dataset including 63 provinces from 2012 to 2021, the research shows the more expenditure-based fiscal decentralization occurs, the better is the performance of local expenditure. Moreover, the level of provincial literacy and the size of the private sector have positive impacts on the local expenditure index, while the opposite effect can be seen in the case of the ratios of local citizens to total citizens of the country. Besides this, the study also provides some recommendations which are strictly related to the mechanism of fiscal decentralization to improve local expenditure performance of Vietnamese provinces, such as more effective decentralization of budget expenditures to local government, improving the vertical budget imbalance at local budget level, increasing local government budget autonomy, and establishing stronger mechanisms to control public spending.

The impact of decentralization of health services at the municipal level on health outcomes: evidence from China.

Under the system of health decentralization, there are differences in the level of expenditure decentralization at different levels of government, and their impact on residents' health may also be different. This paper is one of the first to evaluate the effect of decentralization of health services at the municipal level from a multi-dimensional health perspective. This paper uses the data of expenditure decentralization of health services at the municipal level to match the panel data from the China Household Panel Survey (CFPS) from 2010 to 2018, and uses the logit model, ordered logit model and two-way fixed effects model to empirically analyze the impact of health decentralization at the municipal level on health outcomes. Based on the perspective of multi-dimensional health, from the three aspects of physical health, depression status and cognitive ability, the six sub-indicators of self-rated health, BMI standards, depression scores (summation method), depression scores (factor method), phrase test scores and mathematics test scores are discussed separately. The results show that the decentralization of health services at the municipal level has a significant promotion effect on the multi-dimensional health of residents. The decentralization of health services at the municipal level has important theoretical significance for promoting the reasonable division of medical and health powers and expenditure responsibilities between provincial and municipal governments, improving the efficiency of health expenditure funds, and establishing a fiscal system that matches financial resources.

Fiscal decentralization and economic growth: Empirical evidence from European countries

In this paper we empirically investigate the relationship between fiscal decentralization and economic growth in the European countries, using panel dataset for 31 European countries, over the period 1972-2012. Our empirical results indicate that fiscal decentralization, quantitatively measured as the ratio of local government expenditures and revenues in general government expenditures and revenues has a favorable impact on economic growth in the European countries and also that revenue decentralization is shown to be more effective than expenditure decentralization in terms of stimulating economic growth. Further, our empirical results also suggest that the relationship between decentralization and economic growth is nonlinear, i.e. there is a certain optimal level of fiscal decentralization in terms of economic growth. This means that fiscal decentralization is expected to have a more pronounced positive impact on growth in less decentralized countries, while in more decentralized countries, a further increase in decentralization starts to hinder economic growth. In addition, the growth-enhancing effect of fiscal decentralization is even strongly confirmed in our subsample of advanced European countries, when long termed effect of decentralization was examined. Therefore, compared with our previous findings on the impact of fiscal decentralization on growth in Central and Eastern European countries, we find that fiscal decentralization has a different impact on economic growth in advanced European countries vis-à-vis Central and Eastern European countries, i.e., while it enhances growth in the former, it hindered growth in the latter.

Fiscal Decentralization and Public Infrastructure Maintenance Expenditures: A Cross-Country Panel Analysis

The often-forgotten dimension of public infrastructure finance is the difficulty of maintaining a proper level of infrastructure in good condition. Given that increasing responsibilities for public infrastructure investment have been decentralized worldwide, this study investigates the impact of fiscal and political decentralization on infrastructure maintenance expenditures using a panel cross-country analysis from 1995 to 2020. To address the endogeneity concerns and estimate the causal impact of fiscal decentralization (revenue and expenditure decentralization), this research uses the Geographic Fragmentation Index and country size as two valid instrumental variables for fiscal decentralization. Our main results confirm that fiscal and political decentralization measures are found to increase public spending on road maintenance. The findings are robust to alternative model specifications and different measures of fiscal and political decentralization.

Equalization through the People’s Republic of China’s Intergovernmental Fiscal System: The Effectiveness of Central and Provincial Transfers

The People’s Republic of China’s (PRC) fiscal system is characterized by very high expenditure decentralization and heavy reliance on transfers to finance public services. The government’s embrace of inclusiveness and equalization as national goals has raised questions about whether transfers can deliver equalization. This paper seeks to answer this question by analyzing newly available fiscal data compiled from government websites. We find the allocation of central transfers remains strongly region based, resulting in high intra-regional inequality among provinces. Poorer provinces also tend to retain more central transfers at their own (provincial) level. Those provinces with greater pretransfer inequality tend to exert greater equalization efforts, but these are not necessarily proportional to their pretransfer inequality. As a result, some localities are left out of the PRC’s countrywide equalization program. These equalization patterns remained highly persistent during the coronavirus disease shock in 2020. Collectively, the findings highlight that the PRC’s complex intergovernmental fiscal system still poses challenges for equalization.

The Impact of FDI on Labor Productivity in China: Evidence from Panel Data 2003-2020——A Study on Fiscal Decentralization as a moderating variable

Based on the panel data of China’s 30 provinces, autonomous regions, and municipalities (hereinafter referred to as provinces) from 2003 to 2020, this paper empirically analyzes the impact of foreign direct investment (hereinafter referred to as FDI) on labor productivity by constructing a fixed-effects model, and further constructs a model to test the moderating effect of fiscal decentralization on the above two variables. The study shows that: 1) China's FDI has a positive promotion effect on labor productivity. 2) Taking 2008 as the boundary, the effect of China's FDI on labor productivity has significant stage heterogeneity. 3) Fiscal revenue decentralization and fiscal expenditure decentralization both positively regulate the relationship between FDI and labor productivity. Therefore, the Chinese government (as well as the governments of other developing economies around the world) needs to consciously introduce high-quality FDI that is suitable for the country's current development situation and to give local governments the right to select and introduce FDI that is suitable for local development to realize high-quality economic development.

Empirical Analysis of the Efficiency of Provincial Debt Expenditure in China

Improving the efficiency of local government debt expenditure is the key to preventing and resolving local debt risks in China. Using a three-stage SBM-DEA model, a input-output index system was constructed to calculate and analyze the efficiency of government debt expenditure in 30 provinces and cities (districts) across the country. The results showed that the overall level of local government debt expenditure efficiency in the country was relatively high; There is a significant difference in the efficiency of local debt in the eastern, central, and western regions. The efficiency of local debt expenditure in the eastern region has significant advantages, while the efficiency of local debt expenditure in the western region urgently needs to be improved; The degree of financial deepening, population size, and local debt expenditure efficiency are significantly positively correlated, while fiscal expenditure decentralization is negatively correlated with local debt expenditure efficiency.

재정분권이 공공부문 성과에 미치는 영향 분석

This study empirically analyzes the impact of fiscal decentralization on public sector performance, focusing on national competitiveness and government efficiency. It also explores whether the effects of fiscal decentralization on public sector performance differ based on the income level of countries. This study uses a panel dataset of 25 OECD member countries, covering the period from 2001-2020. The results show that fiscal decentralization improves national competitiveness and government efficiency. Moreover, the impact of revenue decentralization on public sector performance is larger than expenditure decentralization. Finally, the impact of fiscal decentralization on national competitiveness and government efficiency varies depending on the national income level. It is also found that the impact of fiscal decentralization on public sector performance is insignificant among 13 countries with a GDP per capita of less than $40,000.

Natural resource curse and fiscal decentralization: Exploring the mediating role of green innovations and market regulations in G-20 economies

Nations possessing a surplus of natural resources often encounter economic instability and political misconduct due to their significant dependence on the exportation of these commodities. On the other hand, it is argued by several academics that the phenomenon known as the “resource curse” can be alleviated by utilizing proficient governance, commitment to ethical standards, and adept resource management. The objective of the study is to analyze the impact of fiscal decentralization (FD) and natural resource rents (NRR) on mitigating the resource curse phenomenon in the G-20 countries. It explores the role of new technologies and market rules as mediators in this process. The fiscal decentralization, technological advances and market rules have potential to create sustainable environment for efficient resource use and sustainable development. Thus, current study is important to investigate these links. The present study utilizes structural equation models to examine the correlation between the NRR and FD concerning economic growth. The dataset utilized for the study encompasses data from the G-20 economies, covering the period from 1995 to 2022. The study’s findings suggest that nations exhibiting a significant expenditure decentralization level experience a more pronounced resource-blessing effect. Nevertheless, the impact of this phenomenon is mitigated by market rules and advancements in decentralized tax collecting and income distribution systems. The impact of FD on gross domestic product (GDP), particularly in the context of Expenditure decentralization (ED), is generally beneficial. However, it is important to note that regulations and innovations can adversely affect this relationship. The underlying rationale behind this assertion is that an increase in market regulations results in a corresponding proliferation of market rules, impeding economic progress. The findings presented demonstrate the intricate nature of the association between the NRR, FD, and the phenomenon of economic growth. Moreover, the research outcomes demonstrate the significance of achieving a harmonious equilibrium among these three components to facilitate sustainable growth.

Sovereign Debt Crisis and Fiscal Devolution

How is the probability of a sovereign debt crisis affected by fiscal devolution? Using annual cross-country panel data from 82 advanced and developing countries, the association between fiscal decentralization and the sovereign debt crisis is investigated. We adopt an instrumental variable probit model to address potential endogeneity. The research distinguishes between tax policies and spending policies. The results reveal that local tax autonomy reduces the probability of a sovereign debt crisis. In contrast, expenditure devolution is found to increase the probability of a sovereign debt crisis. These favorable and unfavorable effects of fiscal devolution are more evident in the case of decentralization to local governments than in the case of decentralization to subnational governments. In terms of relative magnitudes, our discrete choice analysis demonstrates that the undesirable effects of expenditure decentralization are greater than the desirable effects of tax revenue decentralization. Therefore, countries should be cautious about the risks associated with fiscal devolution, particularly the contrasting impact of tax revenue and spending decentralization on the likelihood that sovereign debt crises occur.

Influence of fiscal decentralization, fintech, and mineral resources on green productivity of G5 countries

The study explores how regional financial autonomy, financial technologies, and resource management strategies intersect to influence sustainable practices and environmental efficiency in G5 economies. The yearly data from 1990 to 2021 has been taken for Canada, Japan, Germany, the United Kingdom, and the United States of America. Empirical analysis of the Cross-sectional Augmented Distributed Lag (CS-ARDL) modeling framework has been performed after a preliminary investigation regarding the variables' cross-sectional dependence, slope heterogeneity, and unit root properties. The outcomes of long-run estimation reveal the positive impact of fintech and revenue decentralization, while mineral resources and expenditure decentralization negatively influence green productivity. Similar results are observed in the short-run; however, their marginal effects are relatively lower. Moreover, the error correction term is negative and significant, indicating an 81.4% speed of adjustment annually to restore the obtained model's equilibrium system. These estimates are validated by the Augmented Mean Group (AMG) and Common Correlated Effect Mean Group (CCEMG) estimators. A bi-directional causality of fintech and revenue decentralization is observed, which offers valuable policy implications.

Impact of fiscal decentralisation on economic growth in Vietnam—A spatial regression approach

AbstractApproaching by spatial regression method, this study examines the impact of fiscal decentralisation on economic growth in 63 provinces/cities of Vietnam in the period 2010–2020. Findings suggest that, in general, revenue decentralisation and expenditure decentralisation not only have a positive impact on the economic growth of provinces/cities but also have spillover effects on other locations in improving GRDP per capita. The above findings provide some important policy implications for improving fiscal decentralisation to promote economic growth in Vietnam.

Natural resources, carbon neutrality, and fiscal federalism: Implications for G7 countries amid rising Covid-19 concerns

Growing apprehensions regarding the environment have become a significant focus of recent literature. In this vein, revenue decentralization, expenditure decentralization, natural resource rent, and economic growth gained less prominence in explaining the consumption-based carbon dioxide emissions of the G7 countries amid rising Covid-19 concerns. Thus, the role of these factors is crucial in investigating their impact on environmental sustainability using G7 nations from 1990 to 2021. The preliminary findings assert the existence of cross-sectional dependence, slope heterogeneity, first-order stationary, and long-run equilibrium relationship between the stated variables. The results show that revenue decentralization positively impacts carbon neutrality, while expenditure decentralization, natural resource rent, and economic growth enhance environmental degradation in the region. Regarding the indirect impact, expenditure decentralization positively moderates the influence of natural resource rent; however, the magnitude is less than its direct impact. Concerning the moderating effect of revenue decentralization and natural resource rent, the outcomes revealed that revenue decentralization mitigates the destructive consequences of natural resource dependency and subsidizes the emissions mitigating effects. The study suggests a transparent fiscal decentralized setup could help to achieve environmental sustainability.

FISCAL DECENTRALIZATION INFLUENCE ON PUBLIC SERVICES EFFICIENCY AND ECONOMIC GROWTH

Theoretically, fiscal decentralization is associated with growing up in the public administration's efficiency and fostering economic growth. But the mentioned things depend on numerous factors and strongly differ from country to country. This article aims to assess the efficiency of public services, provided by local governments, determine the role of fiscal decentralization in this process, and evaluate the fiscal decentralization impact on economic growth. We found that the highest level of public service quality was demonstrated in Estonia and Slovenia among the 15 counties of Central and Eastern Europe. There was no evidence that fiscal decentralization had strong interconnections with the efficiency of public services. The results showed that revenue decentralization harms the GDP per capita growth and expenditure decentralization has only a tiny positive impact on economic growth in Central and Eastern Europe over the 2010-2022 period. The authors concluded that the efficiency of the local budget's expenditures should be increased, cause the enhancement of the public expenditures-to-GDP ratio would have adverse effects without institutional improvement.

The impact of fiscal decentralization on economic growth: A comparative analysis of selected African and OECD countries

Fiscal decentralization, widely believed to be one essential tool to boost economic growth, is typically presented as something that works for developed countries. However, this needs to be investigated, which is what this paper aims to do. This paper investigates the relationship between fiscal decentralization and economic growth, specifically focusing on its applicability in both developed and developing countries. Using cross-sectional data from 23 African and 23 OECD countries, we employ two-stage estimation methods, including two-stage least squares (2SLS), Generalized Method of Moments (GMM), and Limited Information Maximum Likelihood (LIML), to address concerns related to endogeneity. The inclusion of instruments representing country size, ethnoreligious diversity, and administrative structure enhances the analysis. The dependent variable is based on average values for the five-year period between 2015 and 2019, while the explanatory variables are derived from data in 2017, representing the midpoint of the 2013–2021 period. The results highlight the effectiveness of the 2SLS method in estimating the relationship between fiscal decentralization, control variables, instrument variables, and per capita GDP. Empirical findings indicate significant positive impacts of both expenditure decentralization and revenue decentralization on per capita GDP, holding true for both developed and developing countries, with a slightly stronger effect observed in the latter. These results underscore the potential benefits of fiscal decentralization across diverse economies and offer valuable insights for policymakers.The study uses cross-sectional data from 23 African and 23 OECD countries and applies two-stage estimation methods to effectively address the endogeneity issue in the modeling. A variety of such methods in two-stage least squares (2SLS), Generalized Method of Moments (GMM), and Limited Information Maximum Likelihood (LIML) are applied and compared against the ordinary least squares (OLS) method. Variables that represent the size, the ethnoreligious diversity and the type of administrative structure of the countries are employed as instruments. The 2SLS method proved to excellently estimate the relationship between the fiscal decentralization terms as well as other control and instrument variables and the per capita GDP. The findings from the empirical analysis showed that both expenditure decentralization and revenue decentralization have significant positive impacts on per capita GDP of a country. This relationship holds not only for developed countries but also for developing ones, even to a slightly better degree in the latter.

Health Expenditure Decentralization and Health Outcomes: The Importance of Governance

Abstract Does health expenditure decentralization improve a nation’s health? Should countries care about governance quality when they decentralize healthcare spending to local governments? We answer these questions using cross-country data comprising fifty countries from 1996 to 2018. We find that health spending decentralization worsens health outcomes, which are offset by better governance of government. We calibrate the maximum feasible degree of health expenditure decentralization to have positive effects on health outcomes for a given percentile distribution of governance quality. Countries should be mindful of this negative consequence of health spending decentralization and should ensure that the quality of their governance exceeds a certain threshold to offset this negative externality. We also find that vertical fiscal imbalance is negatively associated with health outcomes, underscoring the role of revenue decentralization in improving the fiscal discipline of local governments by avoiding moral hazard caused by soft budget constraints and the common pool problem.

The role of fiscal decentralization and natural resources markets in environmental sustainability in OECD

Environmental sustainability is a global priority. Fiscal decentralization and natural resources markets have become essential for combating climate change and ecological degradation. This study looks at how markets for natural resources and fiscal decentralization affected environmental sustainability in OECD nations between 1995 and 2021. It examines how fiscal decentralization (revenue and expenditure) relates to environmental indicators like carbon dioxide (CO2) emissions and ecological footprint. The study also examines how exports and resource abundance mediate in the natural resource markets. Regression analysis(STIRPAT) is carried out while accounting for institutional and economic variables. According to the findings, more significant revenue and expenditure decentralization results in lower CO2 emissions and an ecological footprint, improving environmental sustainability. Furthermore, a healthy market for natural resources strengthens this connection. These results demonstrate how fiscal decentralization and efficient resource management are crucial for fostering environmental sustainability in OECD nations.

Financial self-sufficiency of Ukrainian territorial communities and local economic development: Modeling the causal relationship

The financial self-sufficiency of communities determines their ability to create additional jobs, attract investment resources, offer quality social services, and improve the population’s living standards and well-being. The study aims to identify the casual relationships between financial self-sufficiency and local economic development of Ukrainian territorial communities during economic instability. The paper used integrated assessment based on a spatial approach (identifying the level of local economic development), indicative method (calculating empirical values of financial self-sufficiency of communities), VEC model (analyzing the sensitivity of local economic development to changes in financial self-sufficiency), balanced multi-component regression method (modeling the relationship between local economic development and financial self-sufficiency). Data were gathered on all territorial communities of Ukraine in 2021. The results show that the highest level of local economic development was observed in Dnipropetrovsk oblast (empirical coefficient equal to 0.855), high levels in Kharkiv, Zaporizhzhia, Odesa, Kyiv, and Poltava oblasts (0.787; 0.687; 0.684; 0.663 each, respectively), and moderate levels in Zakarpattia (0.448) and Kirovohrad (0.433) oblasts. With increased financial self-sufficiency, local economic development can exceed 2%; a 1% increase in the decentralization of tax revenues and expenditures simultaneously leads to an increase in the attractiveness of the investment climate as an indicator of local economic development (2.3-6.6%). The study proves that the territorial communities of the regions characterized by a low level of local economic development demonstrated higher values of decentralization of interbudgetary revenues than those with higher values of local economic development.