The Fiscal Decentralisation and Economic Growth Nexus Revisited |
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Authors: | Jenny E Ligthart Peter van Oudheusden |
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Institution: | 1. CentER and Department of EconomicsTilburg University (Sadly, Jenny passed away in 2012);2. CentER and Department of Economics, Tilburg University;3. World Bank |
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Abstract: | 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. |
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Keywords: | economic growth endogeneity fiscal decentralisation instrumental variables C26 H77 O47 |
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