Fiscal Consolidation and Decentralisation: A Tale of Two Tiers

Julia Darby, V Anton Muscatelli, Graeme Roy

Research output: Working paperDiscussion paper

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Abstract

This paper contributes to the established literature on fiscal consolidations (e.g. Alesina and Perotti, 1995, 1997, Alesina et al, 1998) by investigating the distinct behaviour of central and sub-central tiers of government during general government consolidation attempts. In the light of different degrees of decentralisation across OECD countries, and the different responsibilities devolved to sub-central tiers, we believe that this approach offers an illuminating insight into the analysis of fiscal consolidations and their success. We show that the involvement of the sub-central tiers of government is crucial to achieving cuts in expenditure, particularly in relation to the overall size of the government wage bill. In addition, central governments appear to exert a strong influence on the expenditure of sub-central tiers through their grant allocations, and control of these allocations appears to have a considerable impact upon the overall success of consolidation attempts. Finally we demonstrate that there is a skewness in cuts towards sub-central capital expenditure both when central governments cut grant allocations and when sub-central governments engage in lone consolidation attempts.
Original languageEnglish
Place of PublicationGlasgow
PublisherUniversity of Strathclyde
Pages1-25
Number of pages26
Volume04
Publication statusPublished - Feb 2004

Keywords

  • fiscal studies
  • monetary policy
  • economics
  • government spending

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