Exploring the Causes and Effects of Revenue Decentralization

Research Report

Exploring the Causes and Effects of Revenue Decentralization

Does Revenue Decentralization Increase or Reduce Economic Growth?
January 31, 2014

Abstract

Although many developing and transition countries are pursuing fiscal decentralization reforms, the debate surrounding the relationship between revenue decentralization and economic growth has not yet been fully resolved. While proponents of decentralization suggest that local own source revenue collections are generally evidence of an effective local public sector, a contrasting view holds that revenues collected by weak and non-responsive local governments tend to negatively affect economic growth. Our analysis suggests that the relationship between revenue decentralization and economic growth differs considerably for different groups of countries, but does not find any evidence for the hypothesis that revenue decentralization suppresses economic growth.

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