The impact of fiscal decentralization on economic development

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In this article, updated approach to assess the impact of fiscal decentralization on economic development is offered. The relationship between the proper level of fiscal decentralization and economic growth for 27 advanced and emerging economies in Europe from 1992 to 2017 was evaluated using panel data. In the EU members, Belarus, Georgia and Ukraine expenditures decentralization was more essential than revenue decentralization. The vast majority of the counties from Central and Eastern Europe have increased the level of fiscal decentralization since 1992. It was found that revenue decentralization was associated with lower growth rates, while expenditures decentralization could slightly encourage economic development. The overall decentralization indicator adversely affected the growth, but that interconnection was not robust. The empirical investigation showed significant role of demographic structure and sustainability to ensure economic development. The authors propose the statements for the local authorities to develop the methodical bases of the fiscal policy’s design. In the survey, a balanced approach to the tax and public spending policy’s preparation and planning is presented.

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    • Figure 1. Revenue decentralization in selected countries over 1992–2017 period
    • Table 1. Summary statistics
    • Table 2. Regressions of economic growth on fiscal decentralization and controls, the sample of 27 countries, 1992–2017, unbalanced panel