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Public Choice

, Volume 163, Issue 3–4, pp 307–320 | Cite as

Partial fiscal decentralization and sub-national government fiscal discipline: empirical evidence from OECD countries

  • Zareh Asatryan
  • Lars P. Feld
  • Benny Geys
Article

Abstract

Recent theoretical research suggests that financing sub-national governments’ expenditure out of own revenue sources is linked to more responsible budgeting, because the financial implications of spending decisions then are internalized within a jurisdiction. We test this proposition empirically on a sample of 23 OECD countries over the 1975–2000 period, and find evidence in line with the hypothesis that greater revenue decentralization (measured as sub-national governments’ share of own source tax revenues in general government tax revenue) is associated with improved sub-national government budget deficits/surpluses. This finding is cross-validated with a novel, independent dataset consisting of all 34 OECD member states from 2002 to 2008.

Keywords

Fiscal federalism Revenue autonomy Budget deficits 

JEL codes

H62 H71 H77 E61 

Notes

Acknowledgments

We are grateful to two anonymous referees as well as seminar participants at European Commission, WZB Berlin, ZEW Mannheim and Armenian Economic Association for valuable comments. This paper is based on the strongly revised version of the following discussion paper that appeared in European Economy, Economic Papers No. 501, July 2013. All three authors acknowledge financial support by the European Commission (Grant No. ECFIN/2012/195/633456). Benny Geys also acknowledges financial support from FWO Vlaanderen (Grant No. G.0022.12).

Supplementary material

11127_2015_250_MOESM1_ESM.pdf (66 kb)
Supplementary material 1 (pdf 65 KB)

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Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  1. 1.ZEW Mannheim and University of FreiburgFreiburgGermany
  2. 2.Walter Eucken Institute and University of FreiburgFreiburgGermany
  3. 3.Norwegian Business School BI and Vrije Universiteit BrusselBrusselsBelgium

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