In
International Center for Public Policy
Working Paper 15-02
June 2015
The Impact of Fiscal Decentralization: A Survey
Jorge Martinez-Vazquez
Santiago Lago-Peñas
Agnese Sacchi
INTERNATIONAL
CENTER FOR
PUBLIC POLICY
International Center for Public Policy
Andrew Young School of Policy Studies
Georgia State University
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United States of America
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International Center for Public Policy
Working Paper 15-02
The Impact of Fiscal Decentralization: A
Survey
Jorge Martinez-Vazquez
Santiago Lago-Peñas
Agnese Sacchi
June 2015
International Center for Public Policy
Andrew Young School of Policy Studies
The Andrew Young School of Policy Studies was established at Georgia State University with
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The International Center for Public Policy specializes in four broad policy areas:
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The Impact of Fiscal Decentralization: A
Survey
Jorge Martinez-Vazquez
International Center for Public Policy (Georgia State University) & Governance and Economics research Network
(GEN)
Santiago Lago-Peñas
GEN, IEB, and University of Vigo
Agnese Sacchi
Universitas Mercatorum (Italy) and GEN
Abstract
In this paper we offer a comprehensive and updated review of the impact of fiscal
decentralization on the economy, society and politics. We start with the examination of two
crucial and yet unsolved issues in the literature on decentralization: its proper measurement and
the potential endogeneity of fiscal decentralization with many of the variables of interest we are
trying to investigate. Then we discuss the main findings in the existing literature on the effects of
decentralization on a relevant list of socio-economic variables. The impact of fiscal
decentralization reforms on political institutions is also considered. Complete answers to the
many questions on the impact of fiscal decentralization are not likely to be certain but overall
there are reasons to be optimistic about the overall positive impact of the decentralized systems
that have been introduced all over the world in the past several decades. The survey offered in
this paper by necessity has to be selective but it presents a balanced view of what is known and
what is not yet known opening room for further research and practice on fiscal decentralization.
JEL classification: H70, H72, H77
Keywords: Fiscal federalism, governance, political decentralization, sub-national governments,
macroeconomic stability, economic growth, public policies, politics, corruption, regional
disparities, inequality.
ACKNOWLEDGMENTS: This research has been financially supported by the Spanish Ministry of Science and
Innovation (CSO2013-4703-C2-2-R and ECO2012-37572). We are grateful to Gabriel Leonardo and Fernanda
Martínez for very able research assistance.