Nothing Special   »   [go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_4357.html
   My bibliography  Save this paper

Revisiting the Link between Growth and Federalism: A Bayesian Model Averaging Approach

Author

Listed:
  • Zareh Asatryan
  • Lars P. Feld
Abstract
Following the ambiguous results in the literature aimed at understanding the empirical link between fiscal federalism and economic growth, this paper revisits the question using a Bayesian Model Averaging approach. The analysis suggests that the failure to appropriately account for model uncertainty may have previously led to biased estimates. The results from a sample of 23 OECD countries over 1975-2000 indicate that after controlling for unobserved country heterogeneity, there is no robust link, neither positive, nor negative, between output growth and fiscal federalism (measured as sub-national governments’ share of own source tax revenue).

Suggested Citation

  • Zareh Asatryan & Lars P. Feld, 2013. "Revisiting the Link between Growth and Federalism: A Bayesian Model Averaging Approach," CESifo Working Paper Series 4357, CESifo.
    • Handle: RePEc:ces:ceswps:_4357
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo1_wp4357.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Iimi, Atsushi, 2005. "Decentralization and economic growth revisited: an empirical note," Journal of Urban Economics, Elsevier, vol. 57(3), pages 449-461, May.
    2. Hatfield, John William & Kosec, Katrina, 2013. "Federal competition and economic growth," Journal of Public Economics, Elsevier, vol. 97(C), pages 144-159.
    3. Andrés Rodríguez-Pose & Roberto Ezcurra, 2011. "Is fiscal decentralization harmful for economic growth? Evidence from the OECD countries," Journal of Economic Geography, Oxford University Press, vol. 11(4), pages 619-643, July.
    4. Michael C. Lovell, 2005. "A Simple Proof of the FWL (Frisch-Waugh-Lovell) Theorem," Wesleyan Economics Working Papers 2005-012, Wesleyan University, Department of Economics, revised Jan 2007.
    5. Thushyanthan Baskaran & Lars P. Feld & Jan Schnellenbach, 2014. "Fiscal Federalism, Decentralization and Economic Growth: Survey and Meta-Analysis," CESifo Working Paper Series 4985, CESifo.
    6. Winford H. Masanjala & Chris Papageorgiou, 2008. "Rough and lonely road to prosperity: a reexamination of the sources of growth in Africa using Bayesian model averaging," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(5), pages 671-682.
    7. Jorge Martínez Vázquez & Robert M. McNab, 2006. "Fiscal decentralization, macrostability and growth," Hacienda Pública Española / Review of Public Economics, IEF, vol. 179(4), pages 25-49, September.
    8. Desai, Raj M. & Freinkman, Lev & Goldberg, Itzhak, 2005. "Fiscal federalism in rentier regions: Evidence from Russia," Journal of Comparative Economics, Elsevier, vol. 33(4), pages 814-834, December.
    9. Durlauf, Steven N. & Johnson, Paul A. & Temple, Jonathan R.W., 2005. "Growth Econometrics," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.),Handbook of Economic Growth, edition 1, volume 1, chapter 8, pages 555-677, Elsevier.
    10. Enrique Moral-Benito, 2012. "Determinants of Economic Growth: A Bayesian Panel Data Approach," The Review of Economics and Statistics, MIT Press, vol. 94(2), pages 566-579, May.
    11. Jonathan Temple, 2005. "Dual Economy Models: A Primer For Growth Economists," Manchester School, University of Manchester, vol. 73(4), pages 435-478, July.
    12. Magnus, J.R. & Powell, O.R. & Prüfer, P., 2008. "A Comparison of Two Averaging Techniques with an Application to Growth Empirics," Other publications TiSEM 0392dffa-51e0-4bc9-9644-f, Tilburg University, School of Economics and Management.
    13. Enikolopov, Ruben & Zhuravskaya, Ekaterina, 2007. "Decentralization and political institutions," Journal of Public Economics, Elsevier, vol. 91(11-12), pages 2261-2290, December.
    14. Zhang, Tao & Zou, Heng-fu, 2001. "The growth impact of intersectoral and intergovernmental allocation of public expenditure: With applications to China and India," China Economic Review, Elsevier, vol. 12(1), pages 58-81.
    15. Zareh Asatryan & Lars Feld & Benny Geys, 2015. "Partial fiscal decentralization and sub-national government fiscal discipline: empirical evidence from OECD countries," Public Choice, Springer, vol. 163(3), pages 307-320, June.
    16. Carmen Fernandez & Eduardo Ley & Mark F. J. Steel, 2001. "Model uncertainty in cross-country growth regressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(5), pages 563-576.
    17. Li, Raymond & Leung, Guy C.K., 2012. "Coal consumption and economic growth in China," Energy Policy, Elsevier, vol. 40(C), pages 438-443.
    18. Brueckner, Jan K., 2006. "Fiscal federalism and economic growth," Journal of Public Economics, Elsevier, vol. 90(10-11), pages 2107-2120, November.
    19. Brennan,Geoffrey & Buchanan,James M., 2006. "The Power to Tax," Cambridge Books, Cambridge University Press, number 9780521027922, October.
    20. Philip Bodman & Kelly-Ana Heaton & Andrew Hodge, "undated". "Fiscal Decentralisation and Economic Growth: A Bayesian Model Averaging Approach," MRG Discussion Paper Series 3509, School of Economics, University of Queensland, Australia.
    21. Martinez-Vazquez, Jorge & McNab, Robert M., 2003. "Fiscal Decentralization and Economic Growth," World Development, Elsevier, vol. 31(9), pages 1597-1616, September.
    22. Dan Stegarescu, 2005. "Public sector decentralisation: measurement concepts and recent international trends," Fiscal Studies, Institute for Fiscal Studies, vol. 26(3), pages 301-333, September.
    23. Antonio Ciccone & Marek Jarociński, 2010. "Determinants of Economic Growth: Will Data Tell?," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(4), pages 222-246, October.
    24. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(2), pages 407-443.
    25. Chunyang Zhou & Chongfeng Wu & Donghui Li & Zhian Chen, 2012. "Insurance Stock Returns and Economic Growth," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 37(3), pages 405-428, July.
    26. Xie, Danyang & Zou, Heng-fu & Davoodi, Hamid, 1999. "Fiscal Decentralization and Economic Growth in the United States," Journal of Urban Economics, Elsevier, vol. 45(2), pages 228-239, March.
    27. repec:bla:jpbect:v:1:y:1999:i:2:p:205-24 is not listed on IDEAS
    28. Mrs. Teresa Ter-Minassian, 1997. "Decentralization and Macroeconomic Management," IMF Working Papers 1997/155, International Monetary Fund.
    29. Rauscher Michael, 2007. "Tax Competition, Capital Mobility and Innovation in the Public Sector," German Economic Review, De Gruyter, vol. 8(1), pages 28-40, February.
    30. Davoodi, Hamid & Zou, Heng-fu, 1998. "Fiscal Decentralization and Economic Growth: A Cross-Country Study," Journal of Urban Economics, Elsevier, vol. 43(2), pages 244-257, March.
    31. International Monetary Fund, 2010. "A Historical Public Debt Database," IMF Working Papers 2010/245, International Monetary Fund.
    32. Lars P. Feld & Jan Schnellenbach, 2010. "Fiscal Federalism and Long-Run Macroeconomic Performance," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1009, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    33. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-963, September.
    34. Ulrich Thießen, 2003. "Fiscal Decentralisation and Economic Growth in High-Income OECD Countries," Fiscal Studies, Institute for Fiscal Studies, vol. 24(3), pages 237-274, September.
    35. Koethenbuerger, Marko & Lockwood, Ben, 2010. "Does tax competition really promote growth?," Journal of Economic Dynamics and Control, Elsevier, vol. 34(2), pages 191-206, February.
    36. Jan K. Brueckner, 1999. "Fiscal Federalism and Capital Accumulation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 1(2), pages 205-224, April.
    37. repec:bla:germec:v:8:y:2007:i::p:28-40 is not listed on IDEAS
    38. Zhang, Tao & Zou, Heng-fu, 1998. "Fiscal decentralization, public spending, and economic growth in China," Journal of Public Economics, Elsevier, vol. 67(2), pages 221-240, February.
    39. Thornton, John, 2007. "Fiscal decentralization and economic growth reconsidered," Journal of Urban Economics, Elsevier, vol. 61(1), pages 64-70, January.
    40. Thushyanthan Baskaran & Lars P. Feld, 2013. "Fiscal Decentralization and Economic Growth in OECD Countries," Public Finance Review, , vol. 41(4), pages 421-445, July.
    41. Barro, Robert J. & Lee, Jong Wha, 2013. "A new data set of educational attainment in the world, 1950–2010," Journal of Development Economics, Elsevier, vol. 104(C), pages 184-198.
    42. Jorge Martinez-Vazquez & Robert McNab, 2005. "Fiscal Decentralization,Macrostability, and Growth (2005)," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0506, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    43. Sala-i-Martin, Xavier, 1997. "I Just Ran Two Million Regressions," American Economic Review, American Economic Association, vol. 87(2), pages 178-183, May.
    44. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64(5), pages 416-416.
    45. Magnus, Jan R. & Powell, Owen & Prüfer, Patricia, 2010. "A comparison of two model averaging techniques with an application to growth empirics," Journal of Econometrics, Elsevier, vol. 154(2), pages 139-153, February.
    46. Fritz Breuss & Markus Eller, 2004. "Decentralising the public sector: Fiscal Decentralisation and Economic Growth: Is there Really a Link?," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 2(1), pages 3-9, October.
    47. Michael Rauscher, 2007. "Tax Competition, Capital Mobility and Innovation in the Public Sector," German Economic Review, Verein für Socialpolitik, vol. 8(1), pages 28-40, February.
    48. Gary Woller & Kerk Phillips, 1998. "Fiscal decentralisation and IDC economic growth: An empirical investigation," Journal of Development Studies, Taylor & Francis Journals, vol. 34(4), pages 139-148.
    49. Stansel, Dean, 2005. "Local decentralization and local economic growth: A cross-sectional examination of US metropolitan areas," Journal of Urban Economics, Elsevier, vol. 57(1), pages 55-72, January.
    50. Xavier Sala-I-Martin & Gernot Doppelhofer & Ronald I. Miller, 2004. "Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach," American Economic Review, American Economic Association, vol. 94(4), pages 813-835, September.
    51. Daniel Treisman, 2006. "Fiscal Decentralization, Governance, And Economic Performance: A Reconsideration," Economics and Politics, Wiley Blackwell, vol. 18(2), pages 219-235, July.
    52. Akai, Nobuo & Sakata, Masayo, 2002. "Fiscal decentralization contributes to economic growth: evidence from state-level cross-section data for the United States," Journal of Urban Economics, Elsevier, vol. 52(1), pages 93-108, July.
    53. Şebnem Er, 2012. "Women Indicators of Economic Growth: A Panel Data Approach," Economic Research Guardian, Weissberg Publishing, vol. 2(1), pages 27-42, May.
    54. Li, Jing, 2012. "Economic segregation and urban growth," MPRA Paper 41050, University Library of Munich, Germany.
    55. Jonathan R. W. Temple, 2005. "Growth and Wage Inequality in a Dual Economy," Bulletin of Economic Research, Wiley Blackwell, vol. 57(2), pages 145-169, April.
    56. Lars P Feld & Jan Schnellenbach, 2011. "Fiscal Federalism and Long-Run Macroeconomic Performance: A Survey of Recent Research," Environment and Planning C, , vol. 29(2), pages 224-243, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Thushyanthan Baskaran & Lars P. Feld & Jan Schnellenbach, 2014. "Fiscal Federalism, Decentralization and Economic Growth: Survey and Meta-Analysis," CESifo Working Paper Series 4985, CESifo.
    2. Septimiu-Rares SZABO, 2017. "The Empirical Relationship Between Fiscal Decentralization And Economic Growth: A Review Of Variables, Models And Results," Management Research and Practice, Research Centre in Public Administration and Public Services, Bucharest, Romania, vol. 9(2), pages 47-66, June.
    3. Zareh Asatryan & Lars Feld & Benny Geys, 2015. "Partial fiscal decentralization and sub-national government fiscal discipline: empirical evidence from OECD countries," Public Choice, Springer, vol. 163(3), pages 307-320, June.
    4. Voigt, Stefan & Gutmann, Jerg & Feld, Lars P., 2015. "Economic growth and judicial independence, a dozen years on: Cross-country evidence using an updated Set of indicators," European Journal of Political Economy, Elsevier, vol. 38(C), pages 197-211.
    5. Arin, K. Peren & Braunfels, Elias & Doppelhofer, Gernot, 2019. "Revisiting the growth effects of fiscal policy: A Bayesian model averaging approach," Journal of Macroeconomics, Elsevier, vol. 62(C).
    6. Mark F. J. Steel, 2020. "Model Averaging and Its Use in Economics," Journal of Economic Literature, American Economic Association, vol. 58(3), pages 644-719, September.
    7. Burret, Heiko T. & Feld, Lars P. & Schaltegger, Christoph A., 2022. "Fiscal federalism and economic performance new evidence from Switzerland," European Journal of Political Economy, Elsevier, vol. 74(C).
    8. Alfonso Mendoza‐Velázquez & Mónica Rubio‐García & Luis D. Conde‐Cortés, 2022. "Fiscal decentralization and regional economic growth: Evidence from Mexico since the 2000s," Public Budgeting & Finance, Wiley Blackwell, vol. 42(1), pages 45-65, March.
    9. Бухарский В. В. & Лавров А. М., 2020. "Жесткие Бюджетные Ограничения: Теоретические Основы И Проблематика Российских Городов," Вопросы государственного и муниципального управления // Public administration issues, НИУ ВШЭ, issue 1, pages 7-40.
    10. Thushyanthan Baskaran & Lars P. Feld & Jan Schnellenbach, 2016. "Fiscal Federalism, Decentralization, And Economic Growth: A Meta-Analysis," Economic Inquiry, Western Economic Association International, vol. 54(3), pages 1445-1463, July.
    11. Thushyanthan Baskaran & Lars P. Feld & Sarah Necker, 2017. "Depressing dependence? Transfers and economic growth in the German states, 1975–2005," Regional Studies, Taylor & Francis Journals, vol. 51(12), pages 1815-1825, December.
    12. Paientko Tetiana & Oparin Valeriy & Sarnetska Yana, 2020. "Internal Tax Competition: Does this Result in Economic and Investment Growth?," Financial Sciences. Nauki o Finansach, Sciendo, vol. 25(1), pages 23-34, March.
    13. E. Macarena Hernández-Salmerón & Carlos Usabiaga, 2017. "Regional Growth and Convergence in Spain: Is the Decentralisation Model Important?," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 67(3), pages 389-412, September.
    14. Bartolini, David & Ninka, Eniel & Santolini, Raffaella, 2017. "Tax Decentralisation, Labour productivity and Employment," MPRA Paper 81070, University Library of Munich, Germany.
    15. Andrea Filippetti & Agnese Sacchi, 2016. "Decentralization and economic growth reconsidered: The role of regional authority," Environment and Planning C, , vol. 34(8), pages 1793-1824, December.
    16. Law, Siong Hook & Ng, Chee Hung & Kutan, Ali M. & Law, Zhi Kei, 2021. "Public debt and economic growth in developing countries: Nonlinearity and threshold analysis," Economic Modelling, Elsevier, vol. 98(C), pages 26-40.
    17. Aadil Ahmad Ganaie & Sajad Ahmad Bhat & Bandi Kamaiah & N. A. Khan, 2018. "Fiscal Decentralization and Economic Growth: Evidence from Indian States," South Asian Journal of Macroeconomics and Public Finance, , vol. 7(1), pages 83-108, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Thushyanthan Baskaran & Lars P. Feld & Jan Schnellenbach, 2016. "Fiscal Federalism, Decentralization, And Economic Growth: A Meta-Analysis," Economic Inquiry, Western Economic Association International, vol. 54(3), pages 1445-1463, July.
    2. Thushyanthan Baskaran & Lars P. Feld & Jan Schnellenbach, 2014. "Fiscal Federalism, Decentralization and Economic Growth: Survey and Meta-Analysis," CESifo Working Paper Series 4985, CESifo.
    3. Pierre Salmon, 2013. "Decentralization and growth: what if the cross-jurisdiction approach had met a dead end?," Constitutional Political Economy, Springer, vol. 24(2), pages 87-107, June.
    4. Bartolini, David & Ninka, Eniel & Santolini, Raffaella, 2017. "Tax Decentralisation, Labour productivity and Employment," MPRA Paper 81070, University Library of Munich, Germany.
    5. Canavire-Bacarreza, Gustavo & Martinez-Vazquez, Jorge & Yedgenov, Bauyrzhan, 2020. "Identifying and disentangling the impact of fiscal decentralization on economic growth," World Development, Elsevier, vol. 127(C).
    6. Burret, Heiko T. & Feld, Lars P. & Schaltegger, Christoph A., 2022. "Fiscal federalism and economic performance new evidence from Switzerland," European Journal of Political Economy, Elsevier, vol. 74(C).
    7. Andrés Rodríguez-Pose & Roberto Ezcurra, 2011. "Is fiscal decentralization harmful for economic growth? Evidence from the OECD countries," Journal of Economic Geography, Oxford University Press, vol. 11(4), pages 619-643, July.
    8. Thushyanthan Baskaran & Lars P. Feld, 2009. "Fiscal Decentralization and Economic Growth in OECD Countries: Is there a Relationship?," CESifo Working Paper Series 2721, CESifo.
    9. Yushkov, Andrey, 2015. "Fiscal decentralization and regional economic growth: Theory, empirics, and the Russian experience," Russian Journal of Economics, Elsevier, vol. 1(4), pages 404-418.
    10. Septimiu-Rares SZABO, 2017. "The Empirical Relationship Between Fiscal Decentralization And Economic Growth: A Review Of Variables, Models And Results," Management Research and Practice, Research Centre in Public Administration and Public Services, Bucharest, Romania, vol. 9(2), pages 47-66, June.
    11. Hatfield, John William, 2015. "Federalism, taxation, and economic growth," Journal of Urban Economics, Elsevier, vol. 87(C), pages 114-125.
    12. Tristan Canare, 2021. "Decentralization and Development Outcomes: What Does the Empirical Literature Really Say?," Hacienda Pública Española / Review of Public Economics, IEF, vol. 237(2), pages 111-151, June.
    13. Philip Bodman & Harry Campbell & Kelly-Ana Heaton & Andrew Hodge, "undated". "Fiscal Decentralisation, Macroeconomic Conditions and Economic Growth in Australia," MRG Discussion Paper Series 2609, School of Economics, University of Queensland, Australia.
    14. Jorge Martinez-Vazquez & Santiago Lago-Peñas & Agnese Sacchi, 2017. "The Impact Of Fiscal Decentralization: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 31(4), pages 1095-1129, September.
    15. Cong Minh Huynh & Hoai Nam Tran, 2021. "Moderating effects of corruption and informality on the fiscal decentralization—economic growth nexus: Insights from OECD countries," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 92(2), pages 355-373, June.
    16. Carlos Usabiaga & E. Macarena Hernández-Salmerón, 2016. "Regional Growth and Convergence in Spain: Is the Decentralization Model Important?," EcoMod2016 9358, EcoMod.
    17. Whitney Buser, 2011. "The impact of fiscal decentralization on economics performance in high-income OECD nations: an institutional approach," Public Choice, Springer, vol. 149(1), pages 31-48, October.
    18. Umaima Arif & Eatzaz Ahmad, 2018. "A Framework For Analyzing The Impact Of Fiscal Decentralization On Macroeconomic Performance, Governance And Economic Growth," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 65(01), pages 3-39, May.
    19. Reingewertz, Yaniv, 2014. "Fiscal Decentralization - a Survey of the Empirical Literature," MPRA Paper 59889, University Library of Munich, Germany.
    20. Abd. Ghani, Judhiana & Grewal, Bhajan & Ahmed, Abdullahi D. & Mohamed Nor, Norashidah, 2019. "Fiscal Decentralisation and Economic Growth in Malaysia: A Market Preserving Federalism Perspective," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 53(1), pages 153-170.

    More about this item

    Keywords

    fiscal federalism; economic growth; Bayesian Model Averaging;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_4357. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.