Fiscal decentralization and the distributive incidence of the Great Recession

This paper argues that fiscal decentralization is one important explanation for variation in distributive outcomes following the Great Recession. Using a difference-in-differences approach, it examines how fiscal decentralization mediated the link between spatial distribution, redistributive effort and interpersonal inequality in 21 Organisation for Economic Co-operation and Development (OECD) countries in the years following the Great Recession. It is found that fiscally decentralized nations saw increased interpersonal inequality and lower redistribution, but lower interregional inequality. These results are attributed here to the weaker redistributive mechanisms in fiscally decentralized nations, which increased interpersonal inequality while preserving market-driven declines in high productivity areas that temporary increased regional convergence.

Duke Scholars

Author Pablo Beramendi Political Science