The Effect of Municipal Fiscal Decentralization on Subjective Well Being: The Case of Chile

Abstract

This research hinges upon the relationship between fiscal decentralization and life satisfaction. It contributes to the field by performing an empirical analysis focused on the case of Chile, by merging the national household survey (CASEN) with municipal level information. This analysis is based on a hierarchical empirical model, in which data from both sources are integrated. Our results show a significant positive effect of municipal level fiscal decentralization on individual subjective well-being. Nonetheless, we also show that said result is contingent upon residents’ political representation, which is in line with the hypothesis that citizens’ oversight of local authorities is a necessary condition for the effect of fiscal decentralization to emerge. From the viewpoint of how fiscally decentralized measures should be implemented in practice, above evidence suggests that said process should be accompanied by the strengthening of local residents’ participation in community relevant matters. Further confirmation of this is presented in this research, by showing that residents’ membership in organized groups further increases individual subjective well-being. JEL Classification: H72, H77, C11.