Abstract
This paper provides empirical evidence for the association between fiscal decentralisation and income distribution for a panel of 11 economies from Central and Eastern Europe (CEE) during 1992–2016. We focus on three research topics: the effect of decentralisation on income inequality; the effects of the structure of subnational government finance on income inequality; and the validity of the Kuznets hypothesis. The main findings from the empirical exercise are as follows: first, we provide firm evidence on the presumed favourable effects of fiscal decentralisation on income distribution in the CEE countries; second, our empirical model suggests that the effects of fiscal decentralisation on income inequality are dependent on the source of finance of subnational governments, i.e. intergovernmental transfers may have a role in income equalisation; third, we cannot confirm the validity of the Kuznets hypothesis in CEE countries.
Notes
1. The data on the GINI index are taken from the World Bank’s Development Indicators Database, which is available at: http://databank.worldbank.org/data/reports.aspx?source=world-development-indicators.
2. We have re-run the regressions employing a slightly different education variable (the gross rate of secondary school enrolment), which had the same sign of the regression coefficient, but appeared to be statistically insignificant.