Fiscal Decentralization and Economic Development

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Abstract
Empirical tests of several hypotheses are performed for 64 selected countries. The results of the analyses indicate that the degree of fiscal decentralization in both developed and developing countries is greatly dependent on the ratio of intergovernmental transfer payment, form of government (federal versus nonfederal), level of per capita income, and the degree of urbanization. In a sample of developing countries only, however, the government form as an explanatory variable loses its statistical significance. and the degree of openness of the economy emerges as an important explanatory variable. Although decentralization and centralization of public finances are analyzed here only in aggregate, the knowledge of their determinants may be useful in finding the limits to which decentralization of fiscal programs can be carried out.

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