The impact of fiscal decentralization on growth, inflation and inequality in the Americas

Abstract

This paper analyzes the impact of fiscal decentralization on economic growth, the inflation rate, and the GINI coefficient in eleven American countries. The findings suggest that the expected positive impacts of this process have been modest, with revenue decentralization being more effective at preventing inflation, and expenditure decentralization showing greater tendency to positively influence growth. The flipside of these findings is that in the full sample of countries revenue decentralization deters growth while expenditure decentralization seems to foster inflation. With regards to the impact on the GINI coefficient, fiscal decentralization seems to be, at best, a marginal, negative influence on income distribution. The main recommendation is that American nations should pause and analyze the reasons why this process of fiscal devolution of responsibilities has not delivered on its promise of greater growth, price stability, and less income inequality.