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Business & Economics

DOES FISCAL DECENTRALIZATION INFLUENCE ECONOMIC GROWTH? EMPIRICAL EVIDENCE FROM CEE COUNTRIES
Mihaela Onofrei, Gigel Paraschiv, Elena Cigu, Georgeta Vintila, Stefan Cristian Gherghina

ABSTRACT. The Central and Eastern European (CEE) states are similar from the perspective of changing the political ideology, making in 1990 the transition from a centralized economy to a market economy system, which caused the total rethinking of fiscal policies according to the models of the western countries, on the one hand, and in accordance with the requirements of the European Union, on the other hand.
 However, each country of the CEE builds its own model of transfer of financial and administrative competences or devolution of powers based on the decentralization process assumed, so that the finality of the subnational governments to be the sustainable economic development. These techniques are described and analysed by literature from the perspective of the correlation of fiscal decentralization with economic growth.
This paper aims to analyse from a theoretical and empirical perspective the relationship between fiscal decentralization and economic growth in CEE-11 countries over the period 2000-2015. The results indicate a positive and significant relationship between the coefficients of the fiscal autonomy of subnational governments and the fiscal decentralization index, highlighting the contribution of financial responsibility to intergovernmental fiscal relations. On the other side, it should be noted that increasing revenue decentralization and achieving redistributive equity can be possible without coordinates of fiscal importance of subnational governments, the coefficients being linked. The relationship between fiscal decentralization and economic growth is influenced by the restrictiveness of autonomy and fiscal decentralization framework. We argue that fiscal decentralization mechanisms and the governments carry out decentralized functions, could directly affect the level of revenue and may be correlated with economic growth.

KEYWORDS:  fiscal decentralization, public policies, subnational governments, economic growth, fixed-effects regression.

JEL classification:  H71, H72, H83, O47, O23.