Chapter 24: The challenge of measuring fiscal decentralization
Fiscal federalism data providers have a dismal life. Most academic papers in the area start with an apology for bad data quality and then continue by saying that there are no alternatives, sometimes justifying unpleasant empirical results with the paucity of data. Indeed, data limits often prevent relevant analysis of intergovernmental fiscal frameworks and how they affect outcomes such as fiscal sustainability; economic growth; the distribution of wealth across jurisdictions; public sector efficiency; or citizen’s satisfaction. There are a number of traditional indicators like sub-central spending or revenue shares that can give a first impression of sub-central autonomy in a country. Datasets such as the OECD National Accounts or the IMF Government Statistics cover both a large set of countries and – at least for some countries – a considerable time span, and they serve and have been serving for most empirical analysis dealing with fiscal decentralization. Yet the academics’ grievances about relevance and reliability of decentralization data are understandable to some extent: the traditional measures do not always measure what they are supposed to. Simple tax revenue ratios do not necessarily reflect true power of sub-central governments over tax policy. Spending shares may even be highly misleading if they are taken as a surrogate of fiscal autonomy, to the extent that central government exerts strict control on sub-central spending. Tax and spending constraints are not the only source for low sub-central government (SCG) autonomy.
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