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Public Finance Review
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Explaining Fiscal Decentralization

Leonardo Letelier S.

University of Chile

This study uses a panel of sixty-four countries to test empirically various hypotheses about the causes of decentralization at the government level and in different functional spending areas. The empirical results find a negative impact of urbanization on decentralization. In the general case, a higher income per capita favors decentralization, with this effect being stronger for high-income countries. However, the use of functional measurements of decentralization shows that income per capita has a negative effect on health decentralization. Urbanization has a negative impact on the fiscal decentralization of health and education, and it has a positive effect on the share of housing expenditures being made by subnational governments.

Key Words: political economy • median voter • fiscal federalism • decentralization

Public Finance Review, Vol. 33, No. 2, 155-183 (2005)
DOI: 10.1177/1091142104270910
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