The impact of fiscal decentralization on growth, inflation and inequality in the Americas

Abstract

This paper analyses the impact of fiscal decentralization on economic growth, inflation and Gini coefficients in 12 countries of the Americas. The findings suggest that the positive impact of this process has been more modest than anticipated, with revenue decentralization having a detrimental effect on economic growth and expenditure decentralization a positive one in developing nations of the Americas. Regarding the impact on income inequality, the results indicate that fiscal decentralization can play an important role in reducing this, particularly on the revenue side, but when decentralization is analysed in developing nations of the Americas only, fiscal decentralization is shown to accentuate rather than mitigate income inequality, which highlights the significant amount of work that is yet to be done before this process delivers on expectations. The findings for the impact of fiscal decentralization on price stability are inconclusive.