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Journal of Economic Geography Advance Access first published online on September 22, 2009
This version published online on September 23, 2009
Journal of Economic Geography, doi:10.1093/jeg/lbp049
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© The Author (2009). Published by Oxford University Press. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org

Does decentralization matter for regional disparities? A cross-country analysis

Andrés Rodríguez-Pose*,** and Roberto Ezcurra***

*Department of Geography and Environment, London School of Economics, Houghton St, London WC2A 2AE, UK. email <a.rodriguez-pose{at}lse.ac.uk>
**IMDEA Social Sciences, Madrid, Spain.
***Departamento de Economía, Universidad Pública de Navarra, Campus de Arrosadia s/n, 31006 Pamplona, Spain.

JEL classifications: H11, H71, R11

This article looks at the relationship between fiscal and political decentralization and the evolution of regional inequalities in a panel of 26 countries—19 developed and 7 developing—for the period between 1990 and 2006. Using an instrumental variables method, it finds that whereas for the whole sample decentralization is completely dissociated from the evolution of regional disparities, the results are highly contingent on the level of development, the existing level of territorial inequalities, and the fiscal redistributive capacity of the countries in the sample. Decentralization in high income countries has, if anything, been linked with a reduction of regional inequality. In low and medium income countries, fiscal decentralization has been associated with a significant rise in regional disparities, which the positive effects of political decentralization have been unable to compensate. Policy preferences by subnational governments for expenditure in economic affairs, education, and social protection have contributed to this trend.

Keywords: Fiscal decentralization, political decentralization, regional disparities, territorial inequality, fiscal redistribution
Date submitted: 1 May 2009     Date accepted: 17 August 2009


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