Fiscal Decentralization and Budget Control

Fiscal Decentralization and Budget Control

Studies in Fiscal Federalism and State-local Finance series

Laura Von Daniels

Fiscal Decentralization and Budget Control explores possible institutional solutions to fiscal instability in countries that have traditionally been caught up in problems of over-expenditure and over-indebtedness. How can governments control spending pressure from influential groups, often representing historically grown regional interests? Drawing on a mix of statistical analyses and case studies in institutional theory, the book provides new insights on previous stabilizations in Latin America and facilitates a better understanding of common dynamics of deficits and debt accumulation.

Chapter 2: Overview: institutional approaches to fiscal imbalance and public indebtedness

Laura Von Daniels

Subjects: development studies, development economics, economics and finance, political economy, politics and public policy, political economy, public policy


In this chapter, I discuss the literature in political science and public economics concerned with the effects of decentralized budget decision making on fiscal performance. Above, I sketched out my theoretical approach, which is based on the assumption that institutions are of crucial importance for fiscal outcomes because they set policy incentives for rational self-interested politicians. Hence, I focus on the role of institutions. In doing so, I order the literature along conceptual lines. First, I concentrate on the budgetary institutions literature, which, by and large, argues that stronger centralization of decision-making processes at the national level and binding fiscal rules, together with improved transparency and a credible enforcement mechanism, enhance fiscal stability. Second, I provide an overview of the fiscal federalism literature that deals with the consequences of decentralizing budget-making authority along the vertical axis. In this literature, the decentralization of budget decisions is often thought to invite subnational CPR problems, posing a threat to overall fiscal stability over time. The purpose of the review is hence to present key concepts from both branches of literature that have evolved largely independent of one another, before I propose and test a new model (chapters 3 and 4).

You are not authenticated to view the full text of this chapter or article.

Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.

Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.

Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.

Further information