Does fiscal decentralization promote fiscal discipline?

Date

2016

Authors

Akin, Z.
Bulut-Cevik, Z. B.
Neyapti, B.

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Abstract

We investigate the efficiency and equity implications of a redistributive rule that takes into account both local tax collection efforts and deviation of local incomes from respective targets under alternative fiscal mechanisms. We show that, if the general budget constraint is binding, the proposed transfer rule leads to higher fiscal discipline under fiscal decentralization (FD) than under centralized redistribution. Although the centralized decision yields better income distribution than FD, FD also improves income distribution unambiguously when equalization across regions is targeted explicitly. When localities act strategically, the private sectors utility weight enhances the disciplinary effect of decentralization. © 2016 Taylor & Francis Group, LLC.

Source Title

Emerging Markets Finance and Trade

Publisher

Routledge

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Published Version (Please cite this version)

Language

English