Jin Hui and ICePP director Jorge Martinez-Vazquez have released a paper called “Sustainable Development and the Optimal Level of Fiscal Expenditure Decentralization.” In it, they explore the proposition that both excessive and insufficient levels of expenditure decentralization reduce efficiency of government and service provision, thereby exerting an adverse impact on national sustainable development, theoretically and empirically, seeking to determine the optimal level of expenditure decentralization. From a theoretical perspective, they introduce the expenditures of central and sub-national governments into Barro’s (1990) model and find a hump-shaped relationship between expenditure decentralization and sustainable development as well as striking upon the optimal expenditure decentralization on the theoretical level. To further test this finding empirically, they adopt the NSDI (National Sustainable Development Index) to measure sustainable development and use panel data for 52 countries covering the period 1991-2016 to validate the theorized hump-shaped relationship between expenditure decentralization and sustainable development both in the short and long run. These results remain significant even in two-stage least squares (2SLS) estimations with the Geographic Fragmentation Index (GFI) as the instrumental variable and are robust to alternative specifications. Finally, they also utilize the Lind-Mehlum method to determine the optimal level of expenditure decentralization and find results consistent with the other methods.
Read the full working paper here.
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The International Center for Public Policy has published a working paper series since 1997 to disseminate academic research quickly and to stimulate discussion that can expand knowledge, instill optimal practice and build capacity in the public sector around the world to improve human well-being.
Our primary areas of interest are fiscal decentralization and local governance, tax policy, and public budgeting and fiscal management in the global context. Some papers may focus on the United States if the results have international relevance.
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