An empirical examination of the outcomes of fiscal decentralizatio

This dissertation develops a theoretical model of fiscal decentralization that explicitly incorporates the hypothesized outcomes of fiscal decentralization within a model of economic growth; an empirical analysis of the hypothesized effects of fiscal decentralization and the long-run influence of fiscal decentralization on growth in per capita income; and whether tradeoffs exists among the direct and indirect effects of fiscal decentralization on per capita income growth over time. We develop a neoclassical theoretical model of economic growth that provides support for the contention that fiscal decentralization influences the steady-state growth rate and the convergence path to the steady-state growth rate through its influence on economic efficiency, interjurisdictional disparities in the distribution of public resources across subnational jurisdictions, macroeconomic stability, and democratic governance. The theoretical model also provides justification for the argument in the fiscal decentralization literature that fiscal decentralization directly influences economic growth. Finally, the theoretical model provides a framework to investigate the potential tradeoffs among the outcomes of fiscal decentralization.;We then develop an unbalanced panel data model of fiscal decentralization that spans over twenty years and over fifty countries. Using a two-way fixed effects error components estimator, we empirically investigate the influence of fiscal decentralization on infant mortality, inflation, interpersonal income disparities, democratic governance, public and private investment, and economic growth. We find that fiscal decentralization increases the rate of public investment and lowers the rate of inflation for the countries in the panel data sample. We do find limited support for the developed countries in the sample that fiscal decentralization has a direct and negative influence on economic growth while at the same time lowering the rate of infant mortality. While we find limited support for the argument that tradeoffs exist among the outcomes of fiscal decentralization for the sub-sample of developed countries, we fail to find any support for this proposition for the developing and transitional countries in the sample.