We aim to analyze the effects of fiscal decentralization on economic growth. We develop a theoretical framework, building on the relationships between government size and growth and between decentralization and government size. We empirically test our framework on a panel of 25 European countries observed from 1995 to 2015. Our econometric results show that the relationship between expenditure decentralization and growth is bell-shaped. We also focus on expenditure composition. In this respect, the relationship between investment decentralization and growth is an inverted bell-shaped curve: there is a critical mass of decentralized investments beyond which it is possible to enhance growth.

JEL Codes: D11, H41, O40