Skip to main content

Fiscal Federalism, Decentralization and Economic Growth

  • Chapter
Public Economics and Public Choice

Abstract

The authors thank Thushyanthan Baskaran, Fatma Deniz, Jan Schnellenbach and Anja Weber for valuable comments and research assistance as well as the German Science Foundation (DFG) for funding this project (DFG-SPP 1142).

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 84.99
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 109.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD 109.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  • Aghion AR, Howitt P (1998) Endogenous Growth Theory. MIT Press, Cambridge

    Google Scholar 

  • Akai N, Sakata M (2002) Fiscal Decentralization Contributes to Economic Growth: Evidence from State-Level Cross-Section Data for the United States. Journal of Urban Economics 52, pp 93–108

    Article  Google Scholar 

  • Anselin L, Varga A, Acs ZJ (1997) Local Geographic Spillovers between University Research and High Technology Innovations. Journal of Urban Economics 24, pp 422–448

    Article  Google Scholar 

  • Arrow K, Kurz M (1970) Public Investment, the Rate of Return, and Optimal Fiscal Policy. John Hopkins University Press, Baltimore

    Google Scholar 

  • Audretsch DB, Feldman MP (1996) R&D Spillovers and the Geography of Innovation and Production. American Economic Review 86, pp 630–640

    Google Scholar 

  • Baldwin RE, Krugman P (2004) Agglomeration, Integration and Tax Harmonization. European Economic Review 48, pp 1–23

    Article  Google Scholar 

  • Baldwin RE, Martin P (2004) Agglomeration and Regional Growth In: Henderson JV, Thisse JF (eds) Handbook of Regional and Urban Economics, vol 4, Elsevier, Amsterdam, pp 2671–2711

    Google Scholar 

  • Bardhan P, Mookherjee D (2000) Capture and Governance at Local and National Levels. American Economic Review, Papers and Proceedings 90, pp 135–139

    Google Scholar 

  • Behnisch A, Büttner T, Stegarescu D (2002) Public Sector Centralization and Productivity Growth: Reviewing the German Experience, ZEW Discussion Paper No. 02-03, Mannheim

    Google Scholar 

  • Bernholz P, Vaubel R (eds) (2004) Political Competition, Innovation and Growth in the History of Asian Civilisations. Edward Elgar, Cheltenham

    Google Scholar 

  • Berthold N, Fricke H (2007) Volkswirtschaftliche Auswirkungen der finanziellen Ausgleichssysteme in Deutschland. Discussion Paper No. 93, University of Würzburg

    Google Scholar 

  • Berthold N, Drews S, Thode E (2001) Die föderale Ordnung in Deutschland — Motor oder Bremse des wirtschaftlichen Wachstums? Discussion Paper No. 42, University of Würzburg

    Google Scholar 

  • Besley T, Case AC (1995) Incumbent Behavior: Vote-Seeking, Tax-Setting, and Yardstick Competition. American Economic Review 85, pp 25–45

    Google Scholar 

  • Blankart CB (1996) Comment on Lars P. Feld and Gebhard Kirchgässner: The Economic Meaning of Subsidiarity. In: Holzmann R (ed) Maastricht: Monetary Constitution Without a Fiscal Constitution? Nomos, Baden-Baden, pp 227–230

    Google Scholar 

  • Blankart CB (2007) Föderalismus in Deutschland und in Europa. Nomos, Baden-Baden.

    Google Scholar 

  • Bodman P, Ford K (2006) Fiscal Decentralization and Economic Growth in the OECD. Unpublished Manuscript, University of Queensland, Brisbane

    Google Scholar 

  • Borck R, Pflüger M (2006) Agglomeration and Tax Competition. European Economic Review 50, pp 647–668

    Article  Google Scholar 

  • Brakman S, Garretsen H, Van Marrewijk C (2002) Locational Competition and Agglomeration: The Role of Government Spending. CESifo Working Paper No. 775, Munich

    Google Scholar 

  • Brakman S, Garretsen H, Van Marrewijk C (2006) Agglomeration and Aid. CESifo Working Paper No. 1750, Munich

    Google Scholar 

  • Brennan G, Buchanan JM (1980) The Power to Tax. Cambridge University Press, Cambridge

    Google Scholar 

  • Brueckner JK (1999) Fiscal Federalism and Capital Accumulation. Journal of Public Economic Theory 1, pp 205–224

    Article  Google Scholar 

  • Brueckner JK (2006) Fiscal Federalism and Economic Growth. Journal of Public Economics 90, pp 2107–2120

    Article  Google Scholar 

  • Bucovetsky S, Smart M (2006) The Efficiency Consequences of Local Revenue Equalization: Tax Competition and Tax Distortions. Journal of Public Economic Theory 8, pp 119–144

    Article  Google Scholar 

  • Burbidge J, Cuff K, Leach J (2006) Tax Competition with Heterogeneous Firms. Journal of Public Economics 90, pp 533–549

    Article  Google Scholar 

  • Camagni RP (1995) The Concept of Innovative Milieu and its Relevance for Public Policies in European Lagging Regions. Papers in Regional Science 74, pp 317–340

    Google Scholar 

  • Caniëls MCJ (2000) Knowledge Spillovers and Regional Growth Edward Elgar, Cheltenham

    Google Scholar 

  • Davoodi H, Zou H (1998) Fiscal Decentralization and Economic Growth: A Cross-Country Study. Journal of Urban Economics 43, pp 244–257

    Article  Google Scholar 

  • Desai RM, Freinkman LM, Goldberg I (2003) Fiscal Federalism and Regional Growth: Evidence from the Russian Federation in the 1990s. World Bank Policy Research Working Paper 3138, Washington, D.C.

    Google Scholar 

  • Devereux MP, Griffith R, Simpson H (2007) Firm Location Decisions, Regional Grants and Agglomeration Externalities. Journal of Public Economics 91, pp 413–435

    Article  Google Scholar 

  • Döring T, Schnellenbach J (2006) What Do We Know about Geographical Knowledge Spillovers and Regional Growth?: A Survey of the Literature. Regional Studies 40, pp 375–395

    Article  Google Scholar 

  • Edwards RA (2005) The Structure of Authority, Federalism, Commitment and Economic Growth. Economic Theory 25, pp 629–648

    Article  Google Scholar 

  • Enikolopov R, Zhuravskaya E (2003) Decentralization and Political Institutions. CEPR Discussion Paper No. 3857, London

    Google Scholar 

  • Feld LP (2005) Fiscal Equivalence and the Increasing Dispersion/Divergence of Public Goods Claims — Do We Need a New Interpretation? In: Färber G, Otter N (eds) Spatial Aspects of Federative Systems. Speyerer Forschungsberichte 242, Deutsches Forschungsinstitut für öffentliche Verwaltung, Speyer, pp 147–180

    Google Scholar 

  • Feld LP (2007) Fiscal Federalism and Economic Growth in OECD Countries. Forthcoming in: Bergh A, Höijer R (eds) The Institutional Race. Edward Elgar, Cheltenham

    Google Scholar 

  • Feld LP, Baskaran T, Dede T (2004) Fiscal Federalism and Economic Growth: Cross-Country Evidence for OECD Countries. Unpublished Manuscript, Philipps-University Marburg

    Google Scholar 

  • Feld LP, Kirchgässner G, Schaltegger CA (2004) Fiscal Federalism and Economic Performance: Evidence from Swiss Cantons. Unpublished Manuscript, Philipps-University Marburg

    Google Scholar 

  • Feld LP, Kirchgässner G, Schaltegger CA (2005) Fiskalischer Föderalismus und wirtschaftliche Entwicklung: Evidenz für die Schweizer Kantone. Jahrbuch für Regionalwissenschaft/Review of Regional Research 25, pp 3–25

    Google Scholar 

  • Feld LP, Zimmermann H, Döring T (2003) Föderalismus, Dezentralität und Wirtschaftswachstum. Vierteljahreshefte zur Wirtschaftsforschung 72, pp 361–377

    Google Scholar 

  • Feltenstein A, Iwata S (2005) Decentralization and Macroeconomic Performance in China: Regional Autonomy Has Its Costs. Journal of Development Economics 76, pp 481–501

    Article  Google Scholar 

  • Fisman R, Gattiv R (2002) Decentralization and Corruption: Evidence across Countries. Journal of Public Economics 83, pp 325–345

    Article  Google Scholar 

  • Frey RL (1977) Zwischen Föderalismus und Zentralismus: Ein volkswirtschaftliches Konzept des schweizerischen Bundesstaates. Lang, Bern

    Google Scholar 

  • Huggins R (1997) Competitiveness and the Global Region: The Role of Networking. In: Simmie J (ed) Innovation, Networks, and Learning Regions? Routledge, London, pp 101–123

    Google Scholar 

  • Iimi A (2005) Decentralization and Economic Growth Revisited: An Empirical Note. Journal of Urban Economics 57, pp 449–461

    Article  Google Scholar 

  • Inman RP, Rubinfeld DL (1997) Rethinking Federalism. Journal of Economic Perspectives 11(4), pp 43–64

    Google Scholar 

  • Jin H, Qian Y, Weingast BR (2005) Regional Decentralization and Fiscal Incentives: Federalism, Chinese Style. Journal of Public Economics 89, pp 1719–1742

    Article  Google Scholar 

  • Jin J, Zou H (2005) Fiscal Decentralization, Revenue and Expenditure Assignments, and Growth in China. Journal of Asian Economics 16, pp 1047–1064

    Article  Google Scholar 

  • Justman M, Thisse JF, Van Ypersele T (2002) Taking the Bite Out of Fiscal Competition. Journal of Urban Economics 52, pp 294–315

    Article  Google Scholar 

  • Lejour AM, Verbon HAA (1997) Tax Competition and Redistribution in a Two-Country Endogenous-Growth Model. International Tax and Public Finance 4, pp 485–497

    Article  Google Scholar 

  • Lin JY, Liu Z (2000) Fiscal Decentralization and Economic Growth in China. Economic Development and Cultural Change 49, pp 1–23

    Article  Google Scholar 

  • Ludema RD, Wooton I (2000) Economic Geography and the Fiscal Effects of Economic Integration. Journal of International Economics 52, pp 331–357

    Article  Google Scholar 

  • Keilbach M (2000) Spatial Knowledge Spillovers and the Dynamics of Agglomeration and Regional Growth. Springer, Heidelberg/New York

    Google Scholar 

  • Kind HJ, Knarvik KHM, Schjelderup G (2000) Competing for Capital in a Lumpy World. Journal of Public Economics 78, pp 253–274

    Article  Google Scholar 

  • Kotsogiannis C, Schwager R (2006) Political Uncertainty and Policy Innovation. Journal of Public Economic Theory 8, pp 779–805

    Article  Google Scholar 

  • Krugman P (1991) Increasing Returns and Economic Geography. Journal of Political Economy 3, pp 483–499

    Article  Google Scholar 

  • Krugman P (1999) The Role of Geography in Development. International Regional Science Review 22, pp 142–161

    Article  Google Scholar 

  • Madiès T, Ventelou B (2004) Federalism in an Endogenous Growth Model with Tax Base Sharing and Heterogeneous Education Services. Papers in Regional Science 83, pp 1–18

    Google Scholar 

  • Martinez-Vazquez J, McNab RM (2002) Cross-Country Evidence on the Relationship between Fiscal Decentralization, Inflation, and Growth. In: National Tax Association (ed) Proceedings of the 94th Annual Conference on Taxation 2001. Washington, D.C, pp 42–47

    Google Scholar 

  • Martinez-Vazquez J, McNab RM (2003) Fiscal Decentralization and Economic Growth. World Development 31, pp 1597–1616

    Article  Google Scholar 

  • Naumets I (2003) Fiscal Decentralization and Local Public Sector Efficiency. Unpublished Dissertation, National University of Kiew

    Google Scholar 

  • Oates WE (1972) Fiscal Federalism. Harcourt Brace Jovanovich, New York

    Google Scholar 

  • Oates WE (1990) Decentralization of the Public Sector: An Overview. In: Bennett RJ (ed) Decentralization, Local Governments and Markets. Clarendon Press, Oxford, pp 43–58

    Google Scholar 

  • Oates WE (1993) Fiscal Decentralization and Economic Development. National Tax Journal 46, pp 237–243

    Google Scholar 

  • Oates WE (1999) An Essay on Fiscal Federalism. Journal of Economic Literature 37, pp 1120–1149

    Google Scholar 

  • Oates WE (2006) On the Theory and Practice of Fiscal Decentralization. Mimeo, University of Maryland

    Google Scholar 

  • Ottaviano GIP, Thisse JF (2003) Agglomeration und Economic Geography. CEPR Discussion Paper No. 3838, London

    Google Scholar 

  • Qiao B, Martinez-Vazquez J, Xu Y (2002) Growth and Equity Tradeoff in Decentralization Policy: China’s Experience. Georgia State University, International Studies Program, Working Paper 02-16, Georgia

    Google Scholar 

  • Rauchway E (2006) The Role of Federalism in Developing the US during Nineteenth-Century Globalization, Research Paper No. 2006/72, United Nations University, Helsinki

    Google Scholar 

  • Rauscher M (2005) Economic Growth and Tax-Competing Leviathans. International Tax and Public Finance 12, pp 457–474

    Article  Google Scholar 

  • Rauscher M (2006) Interjurisdictional Competition and Innovation in the Public Sector. Unpublished Manuscript, University of Rostock

    Google Scholar 

  • Rauscher M (2007) Tax Competition, Capital Mobility and Innovation in the Public Sector. German Economic Review 8, pp 28–40

    Article  Google Scholar 

  • Richter WF (1994) The Efficient Allocation of Local Public Factors in Tiebout’s Tradition. Regional Science and Urban Economics 24, pp 323–340

    Article  Google Scholar 

  • Rodden J (2004) Comparative Federalism and Decentralization: On Meaning and Measurement. Comparative Politics 36, pp 481–500

    Google Scholar 

  • Rodden J, Rose-Ackerman S (1997) Does Federalism Preserve Markets? Virginia Law Review 83, pp 1521–1572

    Article  Google Scholar 

  • Rose-Ackerman S (1980) Risk-Taking and Reelection: Does Federalism Promote Innovation? Journal of Legal Studies 9, pp 593–616

    Article  Google Scholar 

  • Salmon P (1987) Decentralization as an Incentive Scheme. Oxford Review of Economic Policy 3(2), pp 24–43

    Article  Google Scholar 

  • Sato M, Yamashige S (2005) Decentralization and Economic Development: An Evolutionary Approach. Journal of Public Economic Theory 7, pp 497–520

    Article  Google Scholar 

  • Schnellenbach J (2004) The Evolution of a Fiscal Constitution When Individuals Are Theoretically Uncertain. European Journal of Law and Economics 17, pp 97–115

    Article  Google Scholar 

  • Schnellenbach J (2004a) Dezentrale Finanzpolitik und Modellunsicherheit: Eine theoretische Untersuchung zur Rolle des fiskalischen Wettbewerbs als Wissen generierender Prozess. Mohr Siebeck, Tübingen

    Google Scholar 

  • Sinn HW (2003) The New Systems Competition. Oxford University Press, Oxford

    Google Scholar 

  • Stansel D (2005) Local Decentralization and Local Economic Growth: A Cross-Sectional Examination of US Metropolitan Areas. Journal of Urban Economics 57, pp 55–72

    Article  Google Scholar 

  • Stegarescu D (2005) Public Sector Decentralization. Measurement Concepts and Recent International Trends. Fiscal Studies 26, pp 301–333

    Article  Google Scholar 

  • Strumpf KS (2002) Does Government Decentralization Increase Policy Innovation? Journal of Public Economic Theory 4, pp 207–241

    Article  Google Scholar 

  • Thießen U (2003) Fiscal Decentralization and Economic Growth in High Income OECD Countries. Fiscal Studies 24, pp 237–274

    Article  Google Scholar 

  • Thießen U (2003a) Fiscal Federalism in Western European and Selected Other Countries: Centralization or Decentralization? What Is Better for Economic Growth. Unpublished Manuscript, DIW Berlin

    Google Scholar 

  • Tiebout CM (1956) A Pure Theory of Local Expenditures. Journal of Political Economy 64, pp 416–424

    Article  Google Scholar 

  • Treisman D (2000) The Causes of Corruption: A Cross-National Study. Journal of Public Economics 76, pp 399–457

    Article  Google Scholar 

  • Treisman D (2002) Defining and Measuring Decentralization: A Global Perspective. Unpublished Manuscript, UCLA

    Google Scholar 

  • Wallis JJ (1999) Early American Federalism and Economic Development, 1790–1840. In: Panagariya A, Portnoy P, Schwab R (eds) Environmental and Public Economics: Essays in Honor of Wallace E. Oates. Edward Elgar, Cheltenham, pp 283–309

    Google Scholar 

  • Weingast BR (1995) The Economic Role of Political Institutions: Market-Preserving Federalism and Economic Development. Journal of Law, Economics and Organisation 11, pp 1–31

    Google Scholar 

  • Wellisch D (2000) Theory of Public Finance in a Federal State. Cambridge University Press, Cambridge

    Google Scholar 

  • Wildasin DE (2003) Fiscal Competition in Space and Time. Journal of Public Economics 87, pp 2571–2588

    Article  Google Scholar 

  • Wilson JD (1999) Theories of Tax Competition. National Tax Journal 52, pp 269–304.

    Google Scholar 

  • Wilson JD, Wildasin DE (2004) Capital Tax Competition: Bane or Boon? Journal of Public Economic 88, pp 1065–1091

    Article  Google Scholar 

  • Woller GM, Phillips K (1998) Fiscal Decentralization and LDC Economic Growth: An Empirical Investigation. Journal of Development Studies, 34, pp 139–148

    Google Scholar 

  • Yilmaz S (2000) The Impact of Fiscal Decentralization on Macroeconomic Performance. In: National Tax Association (ed) Proceedings of the 92nd Annual Conference on Taxation 1999. Washington, D.C, pp 251–260

    Google Scholar 

  • Xie D, Zou H, Davoodi H (1999) Fiscal Decentralization and Economic Growth in the United States. Journal of Urban Economics 45, pp 228–239

    Article  Google Scholar 

  • Zhang T, Zou H (1998) Fiscal Decentralization, Public Spending, and Economic Growth. Journal of Public Economics 67, pp 221–240

    Article  Google Scholar 

  • Zhang T, Zou H (2001) The Growth Impact of Intersectoral and Intergovernmental Allocation of Public Expenditure: With Applications to China and India. China Economic Review 12, pp 58–81

    Article  Google Scholar 

  • Zimmermann H (1990) Fiscal Federalism and Regional Growth. In: Bennett RJ (ed) Decentralization, Local Governments, and Markets: Towards a Post-Welfare Agenda. Oxford University Press, Oxford, pp 245–264

    Google Scholar 

  • Zimmermann H (2002) Fiscal Federalism and National Growth. Economic Review of Toyo University. Tokio, pp 189–200

    Google Scholar 

  • Zou H (1996) Taxes, Federal Grants, Local Public Spending, and Growth. Journal of Urban Economics 39, pp 303–317

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

Authors

Editor information

Editors and Affiliations

Rights and permissions

Reprints and permissions

Copyright information

© 2007 Springer-Verlag Berlin Heidelberg

About this chapter

Cite this chapter

Feld, L.P., Zimmermann, H., Döring, T. (2007). Fiscal Federalism, Decentralization and Economic Growth. In: Baake, P., Borck, R. (eds) Public Economics and Public Choice. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-540-72782-8_6

Download citation

Publish with us

Policies and ethics