Working Paper: NBER ID: w19402
Authors: Lucie Gadenne; Monica Singhal
Abstract: Standard models of fiscal federalism suggest many benefits of decentralization in developing economies, and there has been a recent push toward decentralization around the world. However, developing countries presently still have less decentralization, particularly on the revenue side, than both developed countries today and the United States and Europe historically. We consider how the trade-offs associated with fiscal federalism apply in developing countries and discuss reasons for their relatively low levels of decentralization. We also consider additional features relevant to federalism in developing economies, such as the prevalence of nongovernmental organizations and the role of social incentives in policy design.
Keywords: Decentralization; Fiscal Federalism; Developing Economies; Public Services; Governance
JEL Codes: H2; H4; H7; I3; J01; L3; O1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Local governments' access to local needs (H70) | Better-targeted investments (G11) |
| Decentralization (H77) | Lower corruption (H57) |
| Decentralization (H77) | Improved service delivery (L87) |
| Decentralization (H77) | Fiscal gaps in local governments (H72) |
| Fiscal gaps in local governments (H72) | Inefficiencies in public service delivery (H83) |
| Historical legacies and political constraints (O17) | Limitations on decentralization effectiveness (H77) |
| Decentralization (H77) | Improved public investment in education and health (H40) |