Analyzing the Effects of Fiscal Decentralization on Interaction between Growth and Equitable Distribution of Fiscal Resources in Provinces of Iran (2001-2007)

Abstract

During recent decades, decentralization has been regarded in various societies as an instrument for making public sector policies more efficient, and its numerous advantages and disadvantages have been discussed. Each decentralization policy has three dimensions including Political decentralization, Administrative decentralization and Fiscal decentralization. This paper evaluates the impact of fiscal decentralization on the interaction between economic growth and regional equity in the distribution of fiscal resources in provinces of Iran by using panel data method. The results verify a nonlinear relation between fiscal decentralization and economic growth, so that economic growth rises with fiscal decentralization increase to a specific level and then it decreases because of disadvantages of decentralization. There is a relationship between fiscal decentralization and equitable distribution of fiscal resources too. Growth and equitable distribution variables change in the opposite direction between two levels of decentralization, and move in the same direction out of this interval. There is also a tradeoff between growth and equitable distribution of fiscal resources.

Keywords

• local governments
• decentralization
• fiscal decentralization
• equitable distribution of fiscal resources
• panel data