The (non)impact of revenue decentralization on fiscal deficits: some evidence from OECD countries

Recent studies examining the relation between fiscal decentralization and consolidated government fiscal balances generally have not taken proper account of the extent of the independent taxing powers available to sub-national governments and thus have overstated the degree of effective revenue decentralization. Results from a panel regression study of 19 OECD member countries suggest that when the measure of fiscal decentralization is limited to the revenues over which sub-national governments have full autonomy, its impact on fiscal balances is not statistically significant. Accordingly, when accurately measured revenue decentralization appears to have had no negative impact on fiscal discipline.