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Unformatted text preview: n African countries have the lowest level of
expenditure and revenue shares compared to other regions of the world. As shown in figures 3 and 4, high income
OECD countries have the highest degree of decentralization. 156 Commission on Fiscal Imbalance FIGURES 3 AND 4
FIGURE-3: SUB-NATIONAL SHARE OF EXPENDITURES BY
REGION FIGURE-4: SUB-NATIONAL SHARE OF
REVENUES BY REGION 60%
35% 50% 30% 40% 25% 30% 20% 15% 20%
Africa (4) East Asia and the
Pacific (4) Latin America
Caribbean (9) Europe and
Central Asia (13) High Income,
OECD (18) 0%
Africa (5) East Asia and
the Pacific (7) Latin America
Caribbean (13) Europe and
(15) High Income,
OECD (21) Middle East and
Northern Africa (1) Note: Simple average of most recent observations in available countries. Numbers in parenthesis indicate number of countries represented. Source:
International Monetary Fund. Government Finance Statistics Year Book 1998, Country Tables. Figures 5, 6, and 7 present the association between country size and decentralization for federal and unitary countries
separately . The regression line in Figure 5 suggests that GDP per capita is positively associated with higher
decentralization in both groups. The positive association is stronger for unitary countries. The steeper regression line for
unitary countries implies that the increase in income levels has a stronger effect on subnational governments'
expenditure levels in unitary countries than it has in federal countries. Also, the higher value of R2 for this group of
countries indicates that regression analysis has a stronger explanatory power than federal countries. Overall, the
positive association of decentralization and GDP per capita suggests that an increase in income increases expenditure
levels for subnational governments in both groups.
Figure 6 presents the association between population and fiscal decentralization for the same group of countries. It
appears that population is positively associated with higher level of subnational governments spending in both groups
also. Unlike GDP per capita, the positive association of population and decentralization is stronger for federal countries
than unitary countries. The stronger association of population with fiscal decentralization in federal countries is
consistent with the argument that as country size gets bigger, subnational governments are expected to play an
important role in delivering public services.
Figure 7 shows the relationship between the third size variable and decentralization. The positive slope of regression
line suggests that land area is positively associated with higher decentralization. The magnitude of the impact of land
area on fiscal decentralization is stronger for unitary countries than federal countries.
The estimation results suggest that size variables have a reasonable level of explanatory power in analyzing the
differences in the degree of decentralization across countries. Among the size variables, GDP per capita and population
have the strongest effect on...
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