The Relationship between Fiscal Decentralization and Governance

The research studies the empirical relationship between fiscal decentralization and governance. Two analytical strategies are employed. Through the use of OLS regression, a cross-country analysis is carried out using traditional operational definitions of fiscal decentralization and data from a balanced set of countries. Through the use of a fixed effect model and a stricter dataset, a panel analysis is performed with alternative operational definitions of fiscal decentralization that focus on the autonomy of local governments. For both the analyses, multiple definitions of governance are studied. The results show fiscal decentralization to be not significantly related to the quality of governance.