Fiscal Consolidation and Decentralisation: A Tale of Two Tiers

Julia Darby, V Anton Muscatelli, Graeme Roy

Research output: Working paperDiscussion paper

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.
LanguageEnglish
Place of PublicationGlasgow
PublisherUniversity of Strathclyde
Pages1-25
Number of pages26
Volume04
Publication statusPublished - Feb 2004

Fingerprint

Fiscal consolidation
Government
Fiscal decentralization
Central government
Consolidation
Expenditure
Wages
Decentralization
Skewness
Capital expenditures
Responsibility
OECD countries

Keywords

  • fiscal studies
  • monetary policy
  • economics
  • government spending

Cite this

Darby, J., Muscatelli, V. A., & Roy, G. (2004). Fiscal Consolidation and Decentralisation: A Tale of Two Tiers. (01 ed.) (pp. 1-25). Glasgow: University of Strathclyde.
Darby, Julia ; Muscatelli, V Anton ; Roy, Graeme. / Fiscal Consolidation and Decentralisation : A Tale of Two Tiers. 01. ed. Glasgow : University of Strathclyde, 2004. pp. 1-25
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Darby, J, Muscatelli, VA & Roy, G 2004 'Fiscal Consolidation and Decentralisation: A Tale of Two Tiers' 01 edn, University of Strathclyde, Glasgow, pp. 1-25.

Fiscal Consolidation and Decentralisation : A Tale of Two Tiers. / Darby, Julia; Muscatelli, V Anton; Roy, Graeme.

01. ed. Glasgow : University of Strathclyde, 2004. p. 1-25.

Research output: Working paperDiscussion paper

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T1 - Fiscal Consolidation and Decentralisation

T2 - A Tale of Two Tiers

AU - Darby, Julia

AU - Muscatelli, V Anton

AU - Roy, Graeme

N1 - Published as a paper within the Discussion Papers in Economics, No. 04-01 (2004)

PY - 2004/2

Y1 - 2004/2

N2 - 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.

AB - 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.

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KW - monetary policy

KW - economics

KW - government spending

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Darby J, Muscatelli VA, Roy G. Fiscal Consolidation and Decentralisation: A Tale of Two Tiers. 01 ed. Glasgow: University of Strathclyde. 2004 Feb, p. 1-25.