Fiscal Decentralization and Fiscal Policy Performance

March 24, 2017

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Format: Chicago

Moussé Sow, and Ivohasina F Razafimahefa. Fiscal Decentralization and Fiscal Policy Performance, (USA: International Monetary Fund, 2017) accessed December 26, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper explores the impact of fiscal decentralization on fiscal policy performance in a large sample of advanced and developing economies. The findings suggest that a larger share of decentralized expenditure is associated with a stronger fiscal balance; however, fiscal decentralization can lead to more pro-cyclical fiscal policy. Thus, the design and pace of fiscal decentralization need to be tailored to the specificities of the economy. Countries that have already established strong accountablity and budget management capacity at the local level can benefit from fiscal decentralization. In contrast, in economies prone to large volatility from internal and external shocks, the central government may need to retain a sufficient share of expenditure and revenue to conduct counter-cyclical policies. Finally, the pace of expenditure and revenue decentralization should be aligned.

Subject: Expenditure, Fiscal federalism, Fiscal policy, Fiscal stabilization, Fiscal stance

Keywords: Central government, Public goods, WP

Publication Details

Pages:

29
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/064
Stock No:

WPIEA2017064
ISBN:

9781475588606
ISSN:

1018-5941

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