Open Economies Review

, Volume 27, Issue 4, pp 611–636 | Cite as

Can Fiscal Decentralization Alleviate Government Consumption Volatility?

Research Article


This paper assesses the effect of fiscal decentralization on government consumption volatility using data for 97 developed and developing countries from 1971 to 2010. The results suggest that a higher degree of fiscal decentralization leads to lower government consumption volatility. This result holds for the sub-sample of advanced economies, while it is not confirmed for those less-developed. This mechanism seems to work mainly through a lower volatility of the non-discretionary spending, which typically belongs to the central government’s policy. We also confirm existing findings according to which country size lowers government spending volatility. Thus, given a minimum level of development, fiscal decentralization reforms can reduce spending volatility by distributing power to sub-central governments, particularly in smaller countries which are usually more prone to volatility.


Fiscal policy Fiscal decentralization Spending volatility Automatic stabilisers Country size 

JEL Classification

H60 H71 H72 E62 



We would like to thank Wolfram Berger, Carmine Trecroci, Alberto Zanardi, participants in the XXV conference of the Italian Association of Public Economics (Pavia, September 2013), and the XXI Meeting on Public Economics (Girona, January 2014), the editor George Tavlas as well as two anonymous referees for useful comments. The usual disclaimer applies.


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Copyright information

© Springer Science+Business Media New York 2016

Authors and Affiliations

  • Davide Furceri
    • 1
    • 2
  • Agnese Sacchi
    • 3
    • 4
  • Simone Salotti
    • 5
  1. 1.International Monetary Fund, Research DepartmentWashington D.C.USA
  2. 2.University of PalermoPalermoItaly
  3. 3.Universitas MercatorumRomeItaly
  4. 4.Governance and Economics research Network, GENOurenseSpain
  5. 5.European Commission, Joint Research Centre (JRC), Institute for Prospective Technological Studies (IPTS)SevilleSpain

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