The fiscal inefficiencies associated with the soft budget constraint problem of sub-national governments have long been recognized as one of the critical pitfalls of fiscal federalism. Recent theoretical research suggests, however, that weak local-level budget incentives and excessive borrowing can be overcome when the financial implications of spending decisions are internalized within a jurisdiction, and that the latter can be achieved by assigning (a sufficient degree of) revenue autonomy to sub-national governments. We test this proposition on a sample of 23 OECD countries over 1975-2000 period, and find evidence supporting the hypothesis that higher revenue decentralization (measured as the sub-national governments' share of own source tax revenues) is associated with improved sub-national government budget balances. This finding is cross-validated with a more recent and independent sample consisting of all 34 OECD member states from 2002 to 2008.

Kategorie

Gutachten

Autoren

Asatryan, Zareh
Feld, Lars
Geys, Benny

Schlagworte

Fiscal Federalism, Revenue Autonomy, Budget Deficits