On the Measurement and Impact of Fiscal Decentralization

The typical post–Bretton Woods era development approach that put much emphasis on central government-led development efforts has changed dramatically, and local governments have now clearly emerged as players in development policy. Now, the thinking about what is important to achieve development objectives is changing and many countries around the world are now pursuing fiscal decentralization reforms. Within this context a number of studies attempted to quantify the impact of decentralization by relating some measure of decentralization to the economic outcomes of fiscal stability, economic growth, and public sector size. However, decentralization is surprisingly difficult to measure. In nearly all cases those examining the relationship between decentralization and macroeconomic performance have relied on the Government Finance Statistics (GFS) of the IMF. However, despite its many merits, GFS falls short of providing a full picture of fiscal decentralization. For some countries, however, data that more accurately capture fiscal responsibilities among different types of governments are available