Decentralisation and fiscal performance in Central and Eastern Europe
Journal
Post-Communist Economies
Date Issued
2021
Author(s)
DOI
10.1080/14631377.2020.1793609
Abstract
This paper provides empirical evidence on the association between
decentralisation and budget deficits of the general government for
a panel of 11 former transition countries during 1991–2018, controlling
for the effects of various demographic, institutional, and
macroeconomic variables. We provide evidence that decentralising
government activities in Central and Eastern Europe (CEE) has
favourable effects on the fiscal position of general government.
Also, we show that the greater reliance on intergovernmental
grants as a source of finance of local governments does not have
detrimental effects on the overall fiscal discipline. Therefore, we
cannot support the so-called ‘common pool’ hypothesis, which
predicts that intergovernmental transfers lead to higher public
expenditure, thus exacerbating the fiscal imbalances of the general
government. On the other hand, we show that the effects of
revenue decentralisation depend critically on the specific measure
of local government revenue.
decentralisation and budget deficits of the general government for
a panel of 11 former transition countries during 1991–2018, controlling
for the effects of various demographic, institutional, and
macroeconomic variables. We provide evidence that decentralising
government activities in Central and Eastern Europe (CEE) has
favourable effects on the fiscal position of general government.
Also, we show that the greater reliance on intergovernmental
grants as a source of finance of local governments does not have
detrimental effects on the overall fiscal discipline. Therefore, we
cannot support the so-called ‘common pool’ hypothesis, which
predicts that intergovernmental transfers lead to higher public
expenditure, thus exacerbating the fiscal imbalances of the general
government. On the other hand, we show that the effects of
revenue decentralisation depend critically on the specific measure
of local government revenue.