Partial fiscal decentralization and demand responsiveness of the local public sector: Theory and evidence from Norway |
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| Institution: | 1. University of Siegen Hölderinstr. 3, 57076 Siegen, Germany;2. Research Department, Bank of Israel, POB 780, Jerusalem 91007, Israel;3. ZEW Mannheim, L 7, 1, 68161 Mannheim, Germany;4. Division of Public Administration and Policy, School of Political Science, University of Haifa, 199 Aba Koushy Blvd., Haifa, Israel |
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| Abstract: | This paper provides an empirical test of a principal tenet of fiscal federalism: that spending discretion, when granted to localities, allows public-good levels to adjust 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 greater role of local demand determinants following partial decentralization is confirmed by the paper’s empirical results, which show the effects of the 1986 Norwegian reform. |
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| Keywords: | Fiscal decentralization Tiebout Norway |
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