Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/208190
Authors: 
Canavire-Bacarreza, Gustavo
Martinez-Vazquez, Jorge
Yedgenov, Bauyrzhan
Year of Publication: 
2019
Series/Report no.: 
IDB Working Paper Series No. IDB-WP-1037
Abstract: 
This paper revisits the relationship between fiscal decentralization and economic growth by addressing the endogeneity issue stemming from reverse causality and unobserved factors that has plagued previous extensive literature on this subject. In our approach, we use the Geographic Fragmentation Index (GFI) and country size as instrumental variables, which we argue are strong and consistent instruments for fiscal decentralization. Empirically, we find that indeed both instruments are strong and valid in the first stage of estimation and that on average, a 10 percent increase in subnational expenditure or revenue shares - the conventional measures of decentralization - will increase GDP per capita growth by approximately 0.4 percentage points; however, the results differ for developed versus developing countries.
Subjects: 
Fiscal Decentralization
Geography
Geographic Fragmentation Index
Economic Growth
JEL: 
O47
H77
E62
Persistent Identifier of the first edition: 
Creative Commons License: 
https://creativecommons.org/licenses/by-nc-nd/3.0/igo/legalcode
Document Type: 
Working Paper

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