Regional policy and fiscal competition

Abstract

Governments around the world implement policies aimed at developing certain geographic areas or regions within their respective countries. During the last few decades, local authorities have been assuming a predominant role in the design and execution of these policies. It has been argued that the decentralization of such responsibilities can potentially induce regional governments to behave strategically, initiating a fiscal competition game that would diminish the effectiveness of regional policies. This chapter critically reviews some of the most recent advancements in the literature, focusing on the work that examines the impact of fiscal competition on policy outcomes. At the same time, it intends to identify issues that require further study and provide guidance on the direction of future research in the area.