Complementarity,fiscal decentralization and economic growth |
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Authors: | Nobuo Akai Yukihiro Nishimura Masayo Sakata |
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Institution: | (1) School of Business Administration, University of Hyogo, 8-2-1 Gakuen-Nishimachi, Nishiku, Kobe 651-2197, Japan;(2) Department of Economics, Yokohama National University and Queen’s University, Dunning Hall, Room 209, Kingston, Ontario, K7L 3N6, Canada;(3) Department of Politics, Economics and Law, Osaka International University, 3-50-1, Sugi, Hirakata, Osaka 573-0192, Japan |
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Abstract: | Theories of the voluntary provision of public goods and development economics have clarified that complementarity in the production
process is a crucial ingredient to understanding how alternative economic environments affect economic performance. This paper
examines how the structures of intra- and inter-regional complementarity affect the relationship between economic growth and
fiscal decentralization. We provide a theory that describes how fiscal decentralization affects economic growth under various
structures of regional complementarity. Our empirical analysis, based on a panel data set of the fifty states of the United
States over the period of 1992–1997, supports our theoretical specification of the production function. Also, we observe a
hump-shaped relationship between fiscal decentralization and economic growth that is consistent with our theoretical result.
Our analysis also shows that the optimal degree of fiscal decentralization conducive to economic growth is higher than the
average of the data in some cases, and hence further decentralization is recommended for economic growth.
The previous version of the paper was presented at the 59th Congress of the International Institute of Public Finance (University
of Economics in Prague, Prague), the 2003 Fall Meeting of the Japanese Economic Association (Meiji University, Tokyo), the
60th Annual Meeting of the Japanese Institute of Public Finance (Kansai University, Osaka), and in seminars at Yokohama National
University and the University of California, Irvine. The authors acknowledge the comments and discussions by people including
Timothy Goodspeed, Kiyoshi Mitsui, Motohiro Sato, Etsuro Shioji, Tsunao Okumura, and Craig Parsons. We are also grateful for
the comments by the Editor (Amihai Glazer) and two anonymous referees. The usual disclaimer applies. Nishimura acknowledges
the financial support from JSPS (Japan Society for the Promotion of Science) Postdoctoral Fellowships for Research Abroad. |
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Keywords: | Complementarity Fiscal decentralization Economic growth |
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