6533b86dfe1ef96bd12ca1ce
RESEARCH PRODUCT
Can fiscal decentralization alleviate government consumption volatility?
Simone SalottiAgnese SacchiDavide FurceriDavide Furcerisubject
Macroeconomicsjel:E62jel:H60Decentralization0502 economics and businessEconomics050207 economics050205 econometrics Government spendingFiscal imbalanceautomatic stabilisers; country size; fiscal decentralization; fiscal policy; spending volatility; economics and econometricsfiscal decentralization05 social sciencesautomatic stabiliserseconomics and econometricsAutomatic stabiliserjel:H71jel:H72Fiscal unionFiscal policyFiscal policy fiscal decentralization spending volatility automatic stabilisers country sizeCentral governmentGovernment revenueVolatility (finance)country sizefiscal policyspending volatilitydescription
We analyse how fiscal decentralization affects the volatility of government consumption extending the existing literature that mainly deals with the effects of the former on government size. Using data for 97 developed and developing countries from 1971 to 2010, we find that a higher degree of fiscal decentralization leads to lower government consumption volatility. This result holds for the sub-sample of advanced economies, while it is not confirmed for those less-developed. This mechanism seems to work mainly through a lower volatility of the non-discretionary spending, which typically belongs to the central government’s policy. We also confirm existing findings according to which country size lowers government spending volatility. Thus, given a minimum level of development, fiscal decentralization reforms can reduce spending volatility by distributing power to sub-central governments, particularly in smaller countries which are usually more prone to volatility.
| year | journal | country | edition | language |
|---|---|---|---|---|
| 2016-01-01 |