The Effects Of Fiscal Decentralization On Economic Development

To date,fiscal decentralization(FD)has been advocated throughout the world.The circumstantial evidence is that FD is suggested to have the potential to improve the performance of the public sector;the common evidence is that FD is considered to have the potential to foster economic development and institutional advancement.However,numerous studies adhere to the conventional argument that FD may raise economic efficiency in the public sector has a possibility not to be suitable in developing countries.Moreover,the conventional argument regarding functional revenue assignment and expenditure responsibilities has been challenged on repeated occasions.The recent implementation of FD in Ukraine offers an excellent opportunity for empirical evaluation of this assumption,as Ukraine represents the borderline case between developed and developing countries,by so,a decentralization study upon Ukrainian case will help out to testify on the liaison whether or not there is efficiency gain in countries in transition,as well as examining the issue of revenue and expenditure assignment farther afield developed countries.In recent years,the efforts to systematically investigate the actual effects of FD on economic advancement are few,especially those on initial stage of decentralization reform and under conditions of economic stagnation.This research brings up the following matters of FD.First,Oates's decentralization hypothesis,FD contributes to economic growth?Second,productivity enhancement hypothesis,where business environment,technology advancement,and institutional factors affected economic growth?Third,real population and the ratio of rural citizens in total population as the measures of human capital quality influence the economic growth after the onset of FD?Forth,the ability-to-pay approach,FD differently impacts economic growth in regions depending on the level of economic development.Fifth,convergence hypothesis,the balance between expenditure and revenue on lower levels is positively related to economic growth prospects.The study employs various regression techniques analysis to scrutiny these issues,provides endogeneity and robustness tests,and reveals an up-to-date situation on FD in Ukraine.Controlling for other alongside reforms and multidimensionality of FD this research checks the relationship between FD and the regional economic growth in a panel of 24 regions in a unitary state for the period between 2011 and 2018.Additionally,a survey research method was utilized to collect supplementary questionnaire data,and experts' decision-making techniques to approach the overall FD influence on economic growth.Most importantly,the findings provide evidence that FD has an ambiguous statistically significant impact on regional economic growth in Ukraine.We found out the alongside reforms on business environment as well as social factors,also showed an ambiguous effect on regional economic growth;institutional factor caused by the vertical and horizontal fiscal imbalance does matter;technology advancement variable represented in this study appeared to be a weak explanation for reforms in Ukraine;local government in 'developed' regions have more tendency to fiscal autonomy and have more fiscal power than in 'not-developed' regions.In Ukraine,local budget revenues are more centralized than expenditures,and local governments are heavily dependent upon intergovernmental transfers to ensure local public goods and services,which is detrimental to economic development.Finally,having identified an ambiguous causal relationship,from a policy perspective,we assume that policymakers should be aware of the economic compromises when pushing ahead hasty administrative and fiscal reforms towards more decentralization.