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Fiscal Federalism and International Capital: The Effects of Fiscal Federalism on Foreign Direct Investment and Sovereign Dept Ratings
Author(s) -
Jensen Nathan
Publication year - 2005
Publication title -
swiss political science review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.632
H-Index - 30
eISSN - 1662-6370
pISSN - 1424-7755
DOI - 10.1002/j.1662-6370.2005.tb00371.x
Subject(s) - fiscal federalism , federalism , economics , sovereignty , foreign direct investment , international economics , dual federalism , economic policy , monetary economics , macroeconomics , politics , political science , market economy , law , decentralization
Although the study of federalism has become one of the most intensely studied areas in economics and political science, no consensus has emerged on the impact of fiscal federalism on macroeconomic performance. I focus on one specific element of the debate‐ the role of fiscally federal institutions in allowing a country access to international capital markets. In an empirical analysis of 60 countries from 1975‐1995 I find fiscal federalism has no clear impact on inflows of foreign direct investment. In an examination of the impact of federalism on sovereign debt ratings for 40 countries from 1980‐1998, I find that fiscal federalism is associated with lower levels of sovereign debt risk.