Gustavo Canavire-Bacarreza, Pablo Evia Salas, and Jorge Martinez-Vazquez recently released “The Effect of Crises on Fiscal and Political Recentralization: Large-Panel Evidence.” In it, they explore crisis-induced recentralization. Economic stability plays a key role in any fiscal and political decentralization process. In the face of financial and economic shocks, when revenues and expenditures are reduced, countries may decide to gather resources at the central level—creating a recentralization scenario—or may take away devolved powers and centralize political institutions. Using data for 75 countries, they examine the effects of economic crisis on fiscal and political decentralization. They find that several types of crises lead to fiscal recentralization; only in the case of domestic borrowing crises is the effect further revenue decentralization, probably reflecting the central government’s willingness to empower subnational governments to avoid similar crises in the future. In addition, they explore the effects of economic crisis on political decentralization and find that they are concordant to the fiscal decentralization effects, suggesting an alignment of effects along political and fiscal dimensions of subnational autonomy. They also examine whether economic crises trigger more permanent, rather than just transitory, changes in the level of decentralization. They generally find more long-lasting effects in the case of fiscal decentralization measured from the expenditure side. This pattern is very apparent in the cases of inflation and banking crises and less clear but still present in the cases of currency and external debt crisis. The main results are robust to different specifications, estimation methods, and measurements of decentralization.
Read the full working paper here.
About ICePP’s Working Paper Series
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.
All views expressed in this working paper series are those of the respective authors and do not necessarily represent the views of the International Center for Public Policy, the Andrew Young School of Policy Studies or Georgia State University. All papers should be cited properly with reference to the author(s), institution and working paper series. Find all of our working papers here.