regression discontinuity analysis of gavi s impact on vaccination rates abstract since 2001 an aid consortium known as gavi has accounted for over half of vaccines purchased in the 75 eligible countries with an initial gni below 1 000 per capita regression discontinuity estimates suggest most aid for cheap existing vaccines like hepatitis b and dpt was inframarginal for instance hepatitis b doses sufficient to vaccinate roughly 75 of infants raised vaccination rates by single digit margins these results are driven by middle income countries near the eligibility threshold and do not preclude larger gains for the poorest countries global externalities via vaccine markets or impacts on newer vaccines such as pneumococcal or rotavirus for which income eligibility rules were relaxed

fungibility and the impact of development assistance evidence from vietnam s health sector how can the impact of aid be estimated in the presence of fungibility and how far does fungibility reduce its benefits these questions are analyzed in a context where a donor wants to target its efforts on a specific sector and specific geographic areas a traditional differences in differences method comparing the change in outcomes between the target and nontarget areas before and after the project risks misestimating the project s benefits the paper develops an alternative estimation method in which intersectoral fungibility reduces project benefits insofar as government spending has a smaller impact in the sector to which the funds leak than in the target sector while intrasectoral fungibility reduces benefits insofar as the donor is able to leverage productivity increases in government spending in the target areas the methods are applied to two contemporaneous world bank health projects that set out to target assistance on approximately one half of vietnam s provinces aid is not apparently fungible between vietnam s health sector and other sectors but is fungible across provinces within the health sector differences in differences yield an insignificant impact on infant mortality while the use of the new method yields a statistically significant impact of around 4 per 1000 live births the results however are ambiguous on the costs associated with intrasectoral fungibility

fiscal federalism quantitative studies we often think of fiscal decisions as being made by a single government but in the united states the reality is that an astounding number of entities have the power to tax and spend state local and federal governments all play crucial roles in the u s fiscal system and the interrelation has been the source of continuing controversy this fact is the focus of the seven papers and commentaries presented in this volume the result of a conference sponsored by the nber the contributors use various quantitative tools to study policy issues obtaining results that will interest policymakers and researchers working in the areas of taxation and public finance the first three papers study the distribution of power and responsibilities among the various levels of government john joseph wallis and wallace e oates look at the extend and evolution of decentralization in the state and local sector robert p inman examines the growth of federal grants and the structure of congressional decision making and jeffrey s zax investigates the effects of the number of government jurisdictions on aggregate local public debt and expenditures the next three papers look at the deductibility of state and local taxes on federal tax returns using an econometric analysis douglas holtz eakin and harvey s rosen examine the effects of deductibility on revenue sources and level of expenditures lawrence b lindsey looks at how deductibility affects the level and type of taxation george r zodrow uses a two sector general equilibrium model to investigate revenue effects of deductibility finally charles r hulten and robert m schwab analyze the problem of developing an accurate estimate of income for the state and local sector finding that conventional accounting procedures have underestimated the income generated by a startling 100 billion

disadvantageous collusion and government regulation abstract the semi collusion model indicates that when firms collude on outputs and compete on capacities cartel members may be worse off why do rational firms choose such kind of disadvantageous collusion in order to solve the puzzle this article uses taiwan s flour cartel case to investigate firms incentives and finds that government regulation seems to be the primary reason to create such a predicament

foreign aid and fiscal governance in melanesia summary recent research suggests that foreign aid is effective at spurring economic growth in recipient countries but its effectiveness is likely to depend upon a number of factors arguably the most important factor determining aid effectiveness is how recipient governments mediate foreign aid inflows this paper investigates this issue for the melanesian countries of fiji papua new guinea the solomon islands and vanuatu for the period 1989 2002 results suggest that foreign aid has led to increases in developmental expenditures and to falls in tax revenues and borrowing results also suggest a very different response to aid grants versus loans

foreign aid taxes and public investment abstract using time series data for india we test the foreign aid public investment hypothesis behavioral equations derived from a maximizing framework are estimated after correcting for econometric and data inadequacies of earlier models the results confirm earlier findings regarding the negative relationship between taxes and government investment in the presence of aid however in contrast to the earlier work we find that grants and loans generally go into development projects with no leakages into consumption moreover bilateral aid actually pulls resources out of consumption and puts them into development projects

an empirical test of the effect of excess capacity in price setting capacity constrained supergames abstract in a multi period game industry excess capacity may act to deter firms from cheating on a non cooperative oligopoly price a model is developed that translates the deterrrent influence of excess capacity into predictions about the relationship between excess capacity and oligopoly price cost margins the model is tested with time series data from the u s aluminum industry results are consistent with those predicted by the model

local public works and intergovernmental transfers under asymmetric information abstract this paper studies local public works decisions in a hierarchical setting under bidimensional asymmetric information a local authority plans to undertake a public work and delegates its construction to a firm the federal government decides whether to fund the project without being informed of either the project s benefit or the constructor s efficiency the local authority knows these values to deal with this informational gap the federal government designs a public work contract specifying transfers to the local authority and to the firm we show under which circumstances cost sharing and compensations emerge as incentive devices then we identify which projects are effectively constructed more works with low high benefits are undertaken shut down than under full information

competitive advantage and collusive optima cost differences may often be important in real oligopolies if side payments are impossible the standard cartel objective total industry profits lacks plausibility when costs differ this essay considers plausible alternatives four different technologies for effecting collusion which are essentially identical when costs are equal define sets of possible profits axiomatic bargaining models are used to select unconstrained optima from among these possibilities simple functional forms are employed low cost firms with large shares in cournot equilibrium may have little to gain from collusion if collusion is effective low cost firms will have relatively low estimated conjectural variations

optimal taxation and intergovernmental transfer in a dynamic model with multiple levels of government abstract in this paper we study the optimal choices of the federal income tax federal transfers and local taxes in a dynamic model of capital accumulation and with explicit game structures among multiple private agents multiple local governments and the federal government in general the optimal local property tax is zero if the local property tax is constrained to be nonnegative whereas the optimal local consumption tax is always positive when the local consumption tax is chosen optimally the federal income tax can be either positive or negative for most reasonable parameter values our numerical calculations have shown that with a positive local consumption tax there exists a reverse transfer from local governments to the federal government

taxes federal grants local public spending and growth abstract in a dynamic model with both private and local public capital accumulation this paper examines how federal and local income taxes local consumption tax and federal matching grants for local public consumption and local public investment affect the long run equilibrium equilibria of private consumption private capital accumulation local public consumption and local public capital stock

a panel data analysis of the fungibility of foreign aid the donor community has been increasingly concerned that development assistance intended for crucial social and economic sectors might be used directly or indirectly to fund unproductive military and other expenditures the link between foreign aid and public spending is not straightforward because some aid may be fungible this article empirically examines the impact of foreign aid on the recipient s public expenditures using cross country samples of annual observations for 1971 90 for the base sample of 14 developing countries it finds that aid is not fungible at the aggregate level and there is no associated tax relief increasing the number of countries however makes aid fungible moreover results based on the main sample indicate that aid is fungible in three out of five sectors examined developing country governments receiving earmarked concessionary loans for agriculture education and energy reduce their own resources going to these sectors and use them elsewhere only loans to the transport and communication sector are fully spent on the purposes intended by donors because most aid appears to be fungible the rate of return on a specific donor funded project tells little about the impact of that assistance a better approach may be to tie foreign aid to an overall public expenditure program that provides adequate resources to crucial sectors

the impact of foreign aid on the fiscal behavior of asian ldc governments a comment on khan and hoshino 1992 abstract khan and hoshino 1992 analyze public sector fiscal behavior in the presence of foreign aid using data for five south and southeast asian countries this paper first questions a critical hypothesis test on which khan and hoshino s conclusions depend it then extends khan and hoshino s analysis making explicit both the direct and indirect effects of aid contained within their fiscal response model it argues that a number of khan and hoshino s conclusions do not hold in the context of this representation

parochial interests and the centralized provision of local public goods evidence from congressional voting on transportation projects abstract local public goods financed from a national tax base provide concentrated benefits to recipient jurisdictions but disperse costs creating incentives for legislators to increase own district spending but to restrain aggregate spending due to the associated tax costs while these common pool incentives underpin a variety of theoretical analyses which tend to predict inefficiencies in the allocation of public goods there is little direct evidence that individual legislators respond to such incentives to test for reactions to such incentives this paper analyzes 1998 congressional votes over transportation project funding the empirical results provide evidence that legislators respond to common pool incentives the probability of supporting the projects is increasing in own district spending and decreasing in the tax burden associated with aggregate spending having found that legislators do respond to such incentives i use the parameter estimates to calculate the efficient level of public goods which suggest over spending in aggregate especially in politically powerful districts and large associated deadweight loss

excess capacity and collusion in this paper the authors analyze a restricted class of equilibria in the dynamic model of j p benoit and v krishna 1987 in which firms choose their scale of operation before engaging in a repeated game of price competition benoit and krishna established that all firms carry excess capacity in all collusive equilibria as the authors are interested in the relationship between excess capacity and collusion in price they examine equilibria in which firms tacitly collude in price but not in investment decisions copyright 1990 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

a politico economic approach to intergovernmental lump sum grants this paper develops a positive approach to grant design when the central government and a lobby of local governments are the main agents it develops the hypothesis that the regressivity or progressivity of per capita grants regarding community size is ceteris paribus related to the structure of the lobbying activities of local governments and is independent of hypothetical economies or diseconomies of scale in the production of local public goods an encompassing lobby organisation using a one mayor one vote system of representation supports the regressivity of per capita grants while under proportional representation the lobby will support a design of per capita grants which is progressive towards community size an empirical analysis of lump sum grants in portugal supports the politico economic hypothesis and rejects the hypothesis that economies of scale is the main explanatory cause for the observed regressivity of per capita grants

capital grants and regional public investment in spain fungibility of aid or crowding in effect the aim of capital grants to subcentral governments is to increase their investment however recipients may try to allocate additional resources to cut saving or deficit generating a crowding out effect on self financed investment using data from the spanish autonomous communities during the period 1984 to 1999 the effect of capital transfers on regional public investment saving and deficit are estimated econometric results demonstrate that capital grants have no relevance when explaining the dynamics of saving however in deficit regressions they are shown to be both significant and negative both results lead us to a partial long run crowding out effect of grants on self financed investment

does foreign aid promote the expansion of government building on the literature on public finance i seek to advance our understanding of variations in government size by exploring the impact of official development assistance on fiscal policy i hypothesize that foreign aid operates in accordance with the flypaper effect systematically generating incentives and opportunities for the expansion of government spending results from a time series cross sectional regression analysis of growth in government spending over the 1970 99 time period are consistent with the hypothesis for middle and lower income nations aid represents an important determinant of government expansion looking at the tax and revenue side of the equation however reveals a more perverse pattern of response aid promotes not only increased spending but also reduced revenue generation the results have important implications from both a theoretical and policy perspective inter alia they point to the potentially self defeating nature of efforts to promote market oriented programs of state retrenchment via development assistance as well as to the importance of incorporating international transfers into future research on government spending

testing static oligopoly models conduct and cost in the sugar industry 1890 1914 we explore the widespread methodology of using demand information to infer market conduct and unobserved cost components under the hypothesis of static oligopoly behavior direct measures of marginal cost and conduct indicating small market power serve as benchmarks the more competitive models yield better cost estimates the best cost estimates occur when conduct is estimated as a free parameter which in turn only slightly underestimates our direct measure it also tracks the decline in market power accompanying the industry s structural changes the methodology is largely validated although partial cost information can improve its predictive power conclusions are robust to demand function

foreign owned land while foreign investment augments the capital stock it also affects land prices if it causes land values to rise then the resulting capital gain benefits current landowners but the perma nent effect can be to reduce welfare other things equal more crowde d countries have higher land prices and lower steady state welfare b ut their net foreign indebtedness depends on technology savings beha vior and the interest rate even when it does not affect the domesti c capital stock a land tax raises steady state welfare copyright 1988 by american economic association

on the substitutability between foreign aid and international credit we examine the eect of relaxing a binding borrowing constraint for a recipient country on the amount of foreign aid it receives we do so by developing a two country two period trade theoretic model the relaxation of the borrowing constraint reduces the ow of foreign aid suggesting that the donor views developing nations access to international credit markets as a substitute for foreign aid

economic influences on the structure of local government in u s metropolitan areas abstract there is a large degree of variation in the number of general purpose local governments and school districts per square mile and per person among united states metropolitan areas using data from 1982 this paper provides an empirical test of whether economic factors especially variation in demand for local government services partly account for these differences the empirical findings show that after controlling for political historic and institutional factors variations in the characteristics that affect demand for local government services do influence the number of local governments this result is consistent with the hypothesis first put forth by tiebout

price competition in a capacity constrained duopoly abstract this paper characterizes the set of nash equilibria in a model of price setting duopoly in which each firm has limited capacity and demand is continuous and decreasing in general there is a unique equilibrium so that comparative static exercises are meaningful the properties of the equilibrium conform with a number of stylized facts the equilibrium prices are lower the smaller is demand relative to capacity when demand is in an intermediate range the firms use mixed strategies they randomly hold sales if capacities are chosen simultaneously before prices the set of equilibrium capacities coincides with the set of cournot quantities

debt relief for poor countries conditionality and effectiveness this paper studies the effectiveness of debt relief to stimulate economic growth in the most heavily indebted poor countries we develop a neoclassical framework with a conflict of interest between the altruistic donor and the recipient government and model conditionality as an imperfectly enforceable dynamic contract in contrast to the recent practice of fully cancelling debt optimal incentive compatible conditionality is accompanied by a concessionality level that implies a combination of subsidized loans and outright grants the optimal concessionality level depends on the recipient s access to international financial markets and on the strength of the conflict of interest incentive compatible transfers with optimal concessionality levels generate substantial welfare gains if the donor does not implement the optimal concessionality level and provides subsidized loans only then the effectiveness of transfers decreases in the long run with severe welfare implications in contrast transfers are less effective in the short run if the donor offers outright grants only

fiscal flows in the united states and canada lessons for monetary union in europe regional flows of federal taxes and transfers within the united states and canada are used to analyze long term fiscal flows the redistributive element and short term responses to regional business cycles the stabilization element in the united states long run flows amount to 22 cents in the dollar while the stabilization effect is 31 cents in the dollar in canada the redistributive effect is larger 39 cents and the stabilization effect smaller 17 cents federal flows appears to depend on the institutional structure of the country concerned however in both countries the redistributive element is considerably larger than the amounts involved in the ec structural funds program as for stabilization national fiscal policies in the ec appear to have been as effective as federal governments in the united states and canada in cushioning shocks to incomes

the effectiveness of aid on savings and investment in sub saharan africa do volatility and institutional quality matter abstractthe effectiveness of aid is somewhat subject to its volatility this study investigates the impact of aid volatility especially on savings and investment with a particular focus on the role of institutional quality in 45 sub saharan african ssa countries over the period from 1990 to 2013 we used the generalized method of moments gmm technique combined with a measure of volatility namely an averaged data method involving six 4 year sub periods our results suggest that while aid is positively associated with savings and investment its volatility is harmful to savings and investment however when higher quality institutions exist the volatility of aid has a less negative impact on savings and investment the policy implications are diverse first donors and ssa aid dependent countries need to take into account the diversity of shocks to which aid can respond in mitigating its unpredictability secondly ssa countries should be encouraged to establish the conditions for better quality inst

aid the public sector and the market in less developed countries a reply the article in this journal by mosley et al i987 concludes its analysis of aid effectiveness as demonstrating inability of development aid over more than twenty years to provide a net increment to overall growth in the third world p 636 this note purports to show that this conclusion which is ostensibly distressing as the authors claim is not warranted the section of the study which is the basis of the conclusion cited and the subject of this note is a cross section regression analysis full details of which are shown in mosley et al table 3 the note is concerned with the relation between the dependent variable specified as the growth rate of real gdp per cent per annum hereafter gdp and aid specified as a percentage of gdp hereafter aid the aid results with only two significant positive coefficients in one subsample certainly give no basis for claiming aid effectiveness in terms of gdp growth the intention in this note is to interpret the results which are assumed to be valid this is made possible by the fact that the authors have helpfully provided the full input set of mean values derived from the raw data from this it is possible to calculate the gdp aid relationship for each country for the second and third period the procedure for deriving these relationships is as follows for each country the mean values of the time series of gdp and aid are extracted from the data for i 960 70 and for i 970 80 using i 960 70 as the base the signs of the change in the levels of the gdp and aid mean values between periods are recorded this is repeated for i980 4 with i970 80 mean values as the base the relationship between the two signs is an indication of the effect of aid on gdp in the period in which the change in levels is effected thus in the case of an increase in aid being combined with a decrease in gdp the latter must have fallen relatively to the former and aid effectiveness is negative mutatis mutandis for the other three sign combinations thus generating the appropriate gdp aid relationship for each country in each period a frequency distribution of the four sign combinations relating to the full sample is presented in table i since the signs of the changes in the levels of gdp and aid are derived by making explicit the arithmetic relationship implicit in the data they form a valid base from which to draw conclusions without requiring any test of

international investment and the positive theory of international trade abstract consider a small open economy with a ricardo viner heckscher ohlin technology in period 1 2 period 1 labor is used to produce period 1 consumption goods or period 2 capital goods given international borrowing at fixed interest rates factor price equalization holds short run output and trade patterns are determined by period 1 capital endowments long run outcomes reverse the rybczynski and heckscher ohlin relationships a country with relatively large current capital labor ratios has a low long run capital labor ratio and relative output of the relatively capital intensive good and therefore imports this good a permanent tariff contracts the protected sector in the short run

dynamic effects of federal grants on local spending abstract in a dynamic model of local government spending this paper examines both long run and short run effects of permanent federal grant changes on local public investment and recurrent expenditures it also utilizes the judd approach to quantify the short run effects of temporary current and future policy shocks the interesting perhaps surprising findings are 1 a permanent increase in the matching grants for investment and recurrent expenditures may accelerate or slow down public investment and 2 a current temporary grant increase stimulates current public investment but a temporary future increase in the nonmatching grant reduces current investment and raises current recurrent expenditures

aid growth and devolution considering aid modality and different types of decentralization in this paper we provide further evidence on the relationship between decentralization and foreign aid effectiveness our previous work has shown that decentralization decreases aid effectiveness i e the impact of aid on economic growth is negative in decentralized countries however our previous work has not taken different types of aid and different types of decentralization into account which is at the heart of our current analysis we consider different measures of decentralization in particular measures of fiscal decentralization derived from government finance statistics and measures of political decentralization that are constructed based on countries constitutional rules in addition we take different types of aid into account grants loans technical assistance total net oda and we distinguish between multi lateral and bi lateral aid in order to consider differences in the donor structure our empirical analysis is based on panel data of up to 53 developing countries in our growth regressions we combine all types of decentralization with the different types of aid we find important differences between different types of decentralization i fiscal decentralization negatively affects aid effectiveness in line with our previous work ii employment decentralization may increase aid effectiveness and iii political decentralization does not hamper aid effectiveness or may even have positive effects

election goals and income redistribution recent evidence from albania this paper examines the impact of political competition on block grants from federal to sub federal levels of government we model the extent and direction of income redistribution as determined proximately by the political agendas of central decision makers and at a deeper level by the institutions within which they nd themselves operating we contrast two political objective functions that yield di erent empirical predictions of the ways in which politics should a ect scal policy lessons learned here may prove important in understanding limits on the types of redistribution possible via block grants given the institutional framework in both developing and developed countries 2001 elsevier science b v all rights reserved jel classixcation h1 h7 o1

does economic analysis improve the quality of foreign assistance the world bank undertakes an annual expenditure of around 60 million on country specific economic analysis and advice for its member developing countries what is the impact of this economic and sector work on the quality of world bank lending it will be useful to know whether past analytical work has generated measurable economic benefits that will justify its continued provision in an environment of increasingly scarce resources this article sets out an idealized model of decision making in which a country manager makes a broad allocation of resources between lending services and economic and sector work given that decision the task manager for each project makes project specific decisions with respect to the allocation of resources between preparation and supervision the analysis indicates that economic and sector work has a significant positive impact on the quality of world bank loans the results provide clear evidence of underinvestment in economic and sector work and the analysis shows that resources can be switched from preparation and supervision to economic and sector work to the benefit of both the quality of programs and level of disbursements

consumer benefited cartels under strategic capital investment competition abstract the purpose of this paper is to refute the genrally accepted idea that a cartel raises producers surplus at the expense of consumers surplus if firms in an industry expect that a cartel in which the output is allocated on the bases of the capital equipment will be formed then each firm tries to make a larger capital investment than before which may lead to larger consumers surplus through this argument i shall present one of the reasons why heavy industries had excess capacity in postwar japan

foreign aid and the question of fungibility this paper analyzes whether the foreign assistance provided for specific categories of expenditure is shifted among them contrary to the wishes of donors it also considers whether aid reduces the tax effort of recipient governments econometric results are presented for the dominican republic that show that the fungibility of aid has resulted in a thwarting of the intentions of donors an attempt is made to account for the observed differences in behavior of individual countries in altering expenditures copyright 1993 by mit press

is foreign aid fungible evidence from the education and health sectors this paper adopts a new approach to the issue of foreign aid fungibility in contrast to most existing empirical studies panel data are employed that contain information on the specific purposes for which aid is given this allows linking aid that is provided for education and health purposes to recipient public spending in these sectors in addition aid flows that are recorded on a recipient s budget are distinguished from those that are not recorded on budget and the previous failure to differentiate between on and off budget aid is shown to produce biased estimates of fungibility sector program aid is the measure of on budget aid whereas technical cooperation serves as a proxy for off budget aid the appropriate treatment of off budget aid leads to lower fungibility estimates than those reported in many previous studies specifically in both sectors and across a range of specifications technical cooperation which is the largest component of total education and health aid leads to at most a small displacement of recipient public expenditures

majority rule bargaining and the under provision of public investment goods abstract despite evidence that modern democracies systematically shortchange public investment goods relatively little theoretical work exists to explain this phenomenon we build on baron and ferejohn s american political science review 83 4 1989 1181 1206 bargaining model to describe public investments in a setting of budgetary politics specifically we show that underinvestment inherently arises from distributive politics within a majoritarian institution the inability of current majorities to contract with future ones drives a wedge between spending on consumption today and investing for future consumption extensions to the model demonstrate that earmarking future returns to specific players and or detaching consumption from investment decisions yields more efficient levels of public investment

fiscal effects of foreign aid in a federal system of governance the case of india abstract this paper models fiscal effects of foreign aid in a federal system of governance our main innovation is to incorporate the inter governmental fiscal link in examining economic fungibility of foreign aid the model is applied to the expenditure decisions of the central government of india the two main findings are i foreign aid merely substitutes for spending that the government would have undertaken anyway funds freed by aid are spent on non development activities and ii in passing earmarked external assistance to states the central government makes a reduction in its transfers to states these findings indicate that the central government s expenditure choices are unaffected by external assistance the implication for donors is that even though their development projects may be associated with very high rates of economic return they could be assisting the central government in financing something very different at the margin for the state governments the finding indicates that they may not be reaping the full benefits of externally procured assistance

profit sharing in a collusive industry abstract we study a model in which collusive duopolists divide up the monopoly profit according to their relative bargaining power we are particularly interested in how the negotiated profit shares depend on the sizes of the firms if each can produce at the same constant unit cost up to its capacity we show that the profit per unit of capacity of the small firm is higher than that of the large one we also study how the ratio of the negotiated profits depends on the size of demand relative to industry capacity and how this ratio changes with variations in demand

financing productive local public goods public economics typically assumes that local public goods only affect the utility of consumers we analyze the case of purely productive local public goods within standard growth models investment in the public good enhances productivity only in the jurisdiction where it takes place capital as well as people is perfectly mobile after characterizing the first best equilibrium we show that its decentralization to fiscally independent jurisdictions is more demanding than with local public consumer goods in particular efficient decentralization cannot be obtained with competitive land developers providing the public good through a simple land capitalization scheme

a dynamic specific factors model of international trade in a dynamic economy land and capital serve not only as factors of production but as assets which individuals use to transfer income from working periods to retirement changes in the terms of trade and in the endowments of fixed factors do not necessarily have the same effects on factor prices and on the composition of output as they do in a static framework changes in these variables affect both total savings and the amount of savings that is diverted toward investment in capital results derived from the traditional specific factors model are more likely to emerge when the sector using land as a factor of production has a higher labor share than the sector using capital in this case the land using sector dominates factor markets more than asset markets once the roles for land and capital as assets are recognized the possibility of natural resource booms that reduce steady state welfare arises at the same time an increase in population can raise steady state welfare

fiscal federalism decentralization and economic growth a meta analysis the theoretical literature on fiscal federalism has identified several channels through which government decentralization could affect economic growth much of the literature focuses on the efficiency aspects of a decentralized provision of public services but decentralization may also increase growth by raising the ability of the political system to innovate and carry out reforms in contrast some authors argue that decentralization increases corruption and government inefficiency and thus may diminish growth given this theoretical ambiguity several studies have attempted to identify the effect of decentralization on economic growth empirically over the last two decades we review and conduct a meta analysis of this empirical literature based on our analysis we point out open questions and discuss possible ways to answer them jel h77 043 c52 i introduction building on various theoretical contributions an empirical literature analyzing the effect of fiscal decentralization on economic growth has emerged since the 1990s the relevant studies vary as to whether they use cross sectional time series or panel data as to whether they rely on cross country or single country samples and they vary in estimation methods decentralization measures and sample composition given the size and heterogeneity of the empirical literature it is useful to review the individual studies and summarize their main findings conducting a comprehensive search we identify 31 published and unpublished studies on the effect of fiscal decentralization on economic growth each of these studies estimates several models resulting in over 400 individual estimates while we first review these studies in a traditional manner our main aim is to analyze these estimates quantitatively specifically the main contribution of this article is to offer a meta analysis of the empirical findings on fiscal decentralization and economic growth a meta analysis is a useful methodology in our context as it is difficult to obtain clear cut conclusions with only a traditional survey of empirical literature the individual studies vary substantially in their characteristics and correspondingly in the findings they report by conducting a meta analysis however we can identify how the idiosyncratic characteristics of a particular study relate to its findings the meta analysis approach thus addresses model uncertainty with regard to each individual estimate in addition it can also serve as a partial response to the methodological critique of empirical research on fiscal decentralization by rodden 2004 as it helps to clarify the quantitative effects of different decentralization measures and estimation techniques finally as meta analytical techniques are rarely used in economics we also aim at contributing to the further establishment of this methodology stanley 2001 2008 the next section briefly discusses the various theoretical arguments as to why fiscal decentralization may affect economic growth we then provide a short traditional survey of the empirical studies in section iii we review this literature more systematically and quantitatively in section iv in section v we report the results of meta regressions and discuss how the idiosyncratic characteristics of a given study are related to its specific findings finally section vi provides a discussion of the results and some conclusions ii how could fiscal federalism affect economic growth theoretical approaches within the framework of the solow swan model solow 1956 swan 1956 fiscal federalism may be associated with a different level of efficiency in governance than unitary systems leading to a different value of solow s a the level of technology a regime change toward federalism would then be associated with temporarily different growth rates and eventually different levels of income but not with persistent growth differences

second generation fiscal federalism the implications of fiscal incentives abstract first generation fiscal federalism fgff studies the performance of decentralized systems under the assumption of benevolent social planners second generation fiscal federalism sgff studies performance based on the fiscal and political incentives facing subnational officials the paper focuses on three aspects of sgff first it considers the design of intergovernmental transfers while fgff emphasizes correcting vertical and horizontal equity sgff emphasizes the importance of fiscal incentives for producing local economic prosperity sgff extends fgff approaches by showing how non linear transfer systems can produce both equalization and high marginal fiscal incentives to produce local economic growth second the paper raises the fiscal incentive approach showing how different tax systems produce different fiscal incentives for political officials to choose policies third the paper discusses the interaction of democracy and fiscal federalism

fiscal decentralization and economic growth a cross country study abstract we use a panel data set of 46 countries over the 1970 1989 period to investigate the relationship between fiscal decentralization and economic growth we find a negative relationship between fiscal decentralization and growth in developing countries but none in developed countries several explanations are offered for our findings

capacity and product market competition measuring market power in a puppy dog industry abstract in this paper we specify and estimate a structural model which accounts for competition in two variables capacity and prices the model has a two stage setup in the first stage firms make capacity decisions followed by a product differentiated price setting game in the second stage since costs are endogenized through the first stage this has important implications for the measurement of market power in the product market in particular simpler one stage specifications would result in a bias in the measurement of market power which can be linked to the taxonomy for two stage games given in fudenberg and tirole 1984 fudenberg d tirole j 1984 the fat cat effect the puppy dog ploy and the lean and hungry look american economic review paper and proceedings 74 361 366 we then estimate this model demand cost short and long run and conduct for the european airline industry using data for the period of 1976 1990 we perform a number of specification tests and reject a simple one stage specification in favor of our two stage set up in particular we find that some degree of market power in the product market exists however market conduct in the two stage set up is significantly less collusive than in the more widely employed one stage specification which is consistent with the direction of bias in puppy dog games this illustrates that collusiveness of firms market conduct in the product market is significantly overestimated whenever capacity competition is not accounted for

the welfare effects of rent saving and rent seeking this paper uses an overlapping generations framework to model the allocation of import licences of intermediate goods according to firm capacity it shows that this method of allocation encourages rent seeking and also thereby improves welfare compared with a method that does not allow rent seeking a o kreuger 1975 1974 and j n bhagwati and p desai 1970 describe how turkey and india have allocated imports on the basis of firm capacity which led to rent seeking through overexpansion of capacity j n bhagwati and t n srinivasan 1980 first recognized the possibility that rent seeking may actually improve welfare in the presence of a distortion as it does in this paper

tax decentralization and local government size this paper investigates the relationship between fiscal federalism and the sizes of local governments while many empirical studies emphasized that grants encourage the growth of local public spending and local taxes constrain it they are more silent regarding the effects of different types of tax autonomy the paper addresses this issue by arguing that tax decentralization as organized on tax bases used only by local governments tax separation rather than on tax base sharing would restrain local public expenditures using an unbalanced panel of oecd countries the key finding is that only property taxes mostly based on a tax separation scheme seem to favor smaller local governments thus while tax decentralization is a necessary condition for limiting the growth of local governments it does not appear sufficient as tax separation schemes among government levels would in fact be required

politics and the effectiveness of foreign aid abstract critics of foreign aid programs have long argued that poverty reflects government failure in this paper i test predictions for aid effectiveness based on an analytical framework that relates aid effectiveness to political regimes i find that aid does not significantly increase investment nor benefit the poor as measured by improvements in human development indicators but it does increase the size of government the impact of aid does not vary according to whether recipient governments are liberal democratic or highly repressive but liberal political regimes and democracies ceteris paribus have on average 30 lower infant mortality than the least free regimes this may be due to greater empowerment of the poor under liberal regimes even though the political elite continues to receive the benefits of aid programs an implication is that short term aid targeted to support new liberal regimes may be a more successful means of reducing poverty than current programs

the composition of public expenditure and economic growth abstract noting that the literature has focused on the link between the level of public expenditure and growth we derive conditions under which a change in the composition of expenditure leads to a higher steady state growth rate of the economy the conditions depend not just on the physical productivity of the different components of public expenditure but also on the initial shares using data from 43 developing countries over 20 years we show that an increase in the share of current expenditure has positive and statistically significant growth effects by contrast the relationship between the capital component of public expenditure and per capita growth is negative thus seemingly productive expenditures when used in excess could become unproductive these results imply that developing country governments have been misallocating public expenditures in favor of capital expenditures at the expense of current expenditures

does fiscal decentralization constrain leviathan new evidence from local property tax competition this paper reexamines whether fiscal decentralization constrains leviathan government using panel data for pennsylvania we compare actual property tax rates to the leviathan revenue maximizing rates for municipalities school districts and counties using spatial econometric methods we also estimate the degree of spatial dependence at the three levels of local government we find that fiscal decentralization results in stronger intergovernmental competition and lower tax rates we also find evidence of collusion among school districts that exhibit high interdependence but also high tax rates this calls into question the current literature s blind use of spatial dependence as a measure of intergovernmental competition

is foreign aid fungible the case of indonesia this paper considers whether foreign aid given for specific categories of expenditure is fungible among them and whether aid reduces tax effort by the recipient government models developed to analyze the fiscal relations among different levels of government in the united states are applied to analysis of the impact of foreign aid econometric analysis of data for indonesia reveals that aid is largely spent as the donors intended that aid does not lead to a reduction in tax effort and that aid is not diverted to nondevelopment current expenditures copyright 1990 by royal economic society

are there lasting impacts of aid to poor areas abstract the paper re visits the site of a large world bank financed rural development program in china 10 years after it began and four years after disbursements ended the program emphasized community participation in multi sectoral interventions including farming animal husbandry infrastructure and social services data were collected on 2000 households in project and non project areas spanning 10 years a double difference estimator of the program s impact on top of pre existing governmental programs reveals sizeable short term income gains that were mostly saved only small and statistically insignificant gains to mean consumption emerged in the longer term though in rough accord with the average gain to permanent income the use of community based beneficiary selection greatly reduced the overall impact given that the educated poor were under covered the main results are robust to corrections for various sources of selection bias including village targeting and interference due to spillover effects generated by the response of local governments to the external aid

does decentralization increase government responsiveness to local needs evidence from bolivia this paper examines whether decentralization increases the responsiveness of public investment to local needs using a unique database from bolivia empirical tests show that investment patterns in human capital and social services changed significantly after decentralization these changes are strongly and positively related to objective indicators of need nationally these changes were driven by the smallest poorest municipalities investing devolved funds in their highest priority projects the findings contradict common claims that local government is too corrupt institutionally weak or prone to interest group capture to improve upon central government s allocation of public resources d 2002 published by elsevier b v

government subsidies and presidential election outcomes evidence for a developing country summary we explore the effects of government subsidies on presidential elections in chile in 1989 99 we use a panel with three periods the elections of 1989 1993 and 1999 and 229 counties we correct for the potential simultaneity problem deriving from the fact that an incumbent facing a difficult political scenario might react by increasing subsidies to improve his her electoral performance our results indicate that the greater the coverage of these types of programs i e the percentage of people receiving subsidies the higher the votes for the incumbent

the fungibility of u s military and non military assistance and the impacts on expenditures of major aid recipients abstract this paper examines the impact of u s military and non military assistance on the allocation of public and private sector spending for eight major recipients over the 1972 1987 period the model assumes that an aid recipient s effective post assistance budget constraint is a priori unknown and must be estimated two versions of the model are tested in version a the data is converted into real u s dollars using official exchange rates in version b the data is converted using purchasing power parity exchange rates provided by summers and heston 1991 major findings are the same for both versions u s aid is highly fungible with a significant portion channeled to the private sector where it finances current consumption relatively more than investment