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Decentralization and Economic Growth in Europe: For Whom the Bell Tolls?
1 : University of Milan-Bicocca
* : Corresponding author
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
