commission on fiscal imbalance 合集

Second the fiscal decentralization variable used in

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Unformatted text preview: ed States Strong negative correlation Joulfaian and Marlow (1990) United States Strong negative correlation Grossman and West (1994) Canada Strong negative correlation Ehdaie (1994) Cross-country comparison Strong negative correlation 154 Commission on Fiscal Imbalance Box -2: Empirical Studies on the Impact of Fiscal Decentralization on Economic Growth Little research has been done on the impact of fiscal decentralization on economic growth. Until recently the debate over the merits of fiscal decentralization had been on theoretical grounds of efficiency gains and the empirical studies that have analyzed the impact of fiscal decentralization on economic growth have only appeared recently. Interestingly, these studies generally find that fiscal decentralization is associated with slower economic growth. Studies on The Impact of Fiscal Decentralization on Economic Growth Study Unit of Analysis Findings Davoodi and Zou (1998) Cross-country comparison Significant negative relationship Xie, Zou and Davoodi (1999) United States Significant negative relationship Zhang and Zou (1998) China Significant negative relationship Serious methodological issues confront efforts such empirical studies. First, there is no consensus about specification of an empirical model for growth studies. The literature on economic growth suggests that growth is a complex phenomenon with multi-dimensions (Levine and Renelt, 1992). Growth studies are usually criticized on the grounds of a possible model misspecification (Martinez-Vazquez and McNab, 1997). Second, the fiscal decentralization variable used in these studies does not represent the multidimensionality of the issue. Without controlling for subnational governments’ autonomy over expenditure and revenue decisions and whether subnational officials are democratically elected, the expenditure share of subnational governments as a fiscal decentralization variable means very little in representing the level of decentralization. Third, regression coefficients may very well be the product of spurious correlation. In regression analysis models, the cause-and-effect relationship runs directly from explanatory variables to the dependent variable. However, if both dependent and independent variables are determined simultaneously, the distinction between dependent and explanatory variables becomes dubious. If there is no unidirectional cause-andeffect relationship, the dependent variable is determined by explanatory variables, and some of the explanatory variables are, in turn, determined by output. Given that there has been extensive research on the role of economic on growth on fiscal decentralization (Oates, 1985; Pommerehne, 1977; Kee, 1977; Bahl and Nath, 1986) and very little research on the causation line from fiscal decentralization to economic growth, it is highly suspected that the regression coefficients reported on these studies is a mere reflection of spurious correlation. Therefore, the theoretical underpinnings of the relationship between fiscal decentralization and economic growth still...
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This note was uploaded on 03/06/2013 for the course ECON 220 taught by Professor Paulo during the Spring '13 term at University of Liverpool.

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