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The Fiscal Decentralisation and Economic Growth Nexus Revisited
Author(s) -
Ligthart Jenny E.,
Oudheusden Peter
Publication year - 2017
Publication title -
fiscal studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.63
H-Index - 40
eISSN - 1475-5890
pISSN - 0143-5671
DOI - 10.1111/1475-5890.12099
Subject(s) - decentralization , endogeneity , nexus (standard) , economics , instrumental variable , autonomy , sample (material) , position (finance) , fiscal federalism , macroeconomics , fiscal union , fiscal policy , public economics , econometrics , political science , finance , chemistry , chromatography , computer science , law , market economy , embedded system
This paper addresses two challenges that the fiscal decentralisation and economic growth nexus faces – namely, endogeneity problems and inaccurate measurement of fiscal decentralisation. We introduce novel instrumental variables based on common legal system origin, common federal system, geographical position and relative country size. The positive relationship between fiscal decentralisation and economic growth that we find remains valid when using these instrumental variables. Using fiscal decentralisation measures that better reflect the autonomy of subnational governments changes this relationship. This finding, however, is the result of the accompanying changes in the sample rather than the use of these alternative measures themselves.