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Title:Partial fiscal decentralization and public-sector heterogeneity: Theory and evidence from Norway PDF Logo
Authors:Borge, Lars-Erik
Brueckner, Jan K.
Rattso, Jorn
Issue Date:2012
Series/Report no.:CESifo Working Paper: Public Finance 3954
Abstract:This paper provides an empirical test of a principal tenet of fiscal federalism: that spending discretion, when granted to localities, leads to public-sector heterogeneity, with public-good levels adjusting to suit local demands. The test is based on a simple model of partial fiscal decentralization, under which earmarking of central transfers for particular uses is eliminated, allowing funds to be spent according to local tastes. The model predicts that partial decen- tralization generates dispersion in the levels of public services as spending adjusts to local preferences. But the model also yields the more-general prediction that the characteristics of local jurisdictions should play a bigger role in determining the levels of public goods after a decentralization reform than before. Both predictions are confirmed by the paper's empirical results, which show the effects of the 1986 Norwegian reform.
JEL:H70
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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