Are fiscal decentralization and institutional quality poverty abating? Empirical evidence from developing countries

Figures & data

Figure 1. Average poverty, net income Gini, revenue share, and expenditure share in developing countries, 1990–2014.

Source: Author’s calculation based on World Development Indicator, Standardized World Income Inequality Database, and Government Financial Statistics

Table 1. List of variables

Variable Name	Description	Variable Source
rev	Subnational revenue as a share of total (local, state, and central) government revenue	Own construction based on Government Financial Statistics, IMF
exp	Subnational expenditures as a share of total (local, state, and central) government expenditures	Own construction based on Government Financial Statistics, IMF
dem	Level of Democracy where 0 represents autocracy and 10 represents democracy	The quality of the government’s basic dataset based on the Polity IV project
qog	Quality of government where 0 represent bad government quality and 1 represent good government quality	The quality of the government’s basic dataset based on the ICRG scale
lgdppc	Natural logarithm of the initial level of real GDP per capita	UNESCO Statistical Year Book
popgr	Population growth rate	World Development Indicator, The World Bank
hci	Initial human capital index	Penn World Table, Version 9.0
pov	Headcount poverty index based on a poverty line of US $1.9	World Development Indicator, The World Bank
dtic	Dummy = 0 if the country is in the low-income group; 1 if the country is in the lower-middle-income group; 2 if the country is in the upper-middle-income group	Own construction

Table 2. Summary of statistics

Variable	Observation	Mean	Std. Deviation	Min	Max
rev	165	20.97	15.41	0.64	55.34
exp	164	19.86	15.52	0.62	67.89
dem	663	5.51	2.90	0	10
qog	445	0.43	0.12	0.07	0.78
lgdpc	627	7.03	1.10	4.17	9.78
popgr	666	1.70	1.22	−3.77	6.25
hci	475	2.00	0.57	1.03	3.30
pov	394	25.34	24.10	0	94.05
dtinc	680	1.19	0.77	0	2

Table 3. Regression on fiscal decentralization, poverty, and democracy

Independent Variable	Dependent Variable: Headcount Poverty
	Fixed Effect (1)	Random Effect (2)	PFGLS (3)	PFGLS (4)	PFGLS (5)	Fixed Effect (6)	Random Effect (7)		PFGLS (8)	PFGLS (9)	PFGLS (10)
rev	−0.52 (0.73)	−0.72 (0.51)	−0.24 (0.17)	−0.67 (0.51)	−0.85* (0.48)
rev x dem	−0.008 (0.08)	0.006 (0.04)		0.03 (0.03)	0.01 (0.04)
revsq	0.01 (0.008)	0.01** (0.006)		0.01 (0.007)	0.02*** (0.006)
exp						0.54 (1.05)	−0.24 (0.59)		−0.08 (0.14)	−0.36 (0.66)	−0.39 (0.56)
exp x dem						−0.05 (0.084)	−0.01 (0.04)			0.02 (0.03)	−0.007 (0.04)
expsq						0.002 (0.009)	0.009 (0.007)			0.008 (0.009)	0.01 (0.007)
dem	−1.13 (1.97)	−0.78 (1.44)		−1.12 (1.16)	−0.58 (1.33)	−0.98 (2.16)	−0.54 (1.54)			−0.79 (1.16)	−0.23 (1.37)
gdppc (log)	−5.09** (2.24)	−8.12*** (1.39)		−6.26*** (1.85)	−9.06*** (1.36)	−5.26** (2.25)	−7.88*** (1.46)			−6.12*** (1.98)	−9.00*** (1.46)
gov	25.84** (11.10)	25.20*** (10.23)		35.19*** (13.58)	25.87** (12.03)	27.39** (11.04)	24.73** (10.72)			33.94*** (13.92)	24.28** (12.32)
popgr	0.61 (2.15)	4.64*** (1.49)		5.11*** (1.64)	5.65*** (1.53)	1.81 (1.51)	5.00*** (1.45)			5.26*** (1.64)	5.95*** (1.53)
hci	−7.00 (6.94)	−4.98 (3.97)		−8.25** (4.02)	−4.41 (3.76)	−6.88 (6.33)	−6.14* (3.81)			−8.29** (4.31)	−5.34 (3.81)
R-squared	0.50	0.62				0.40	0.60
Obs	122	122	141	94	122	122	122		141	93	122
No. of countries	45	45	53	43	45	45	45		53	42	45
Hausman test	0.17					0.11

Number of parentheses are robust standard error. The asterix can be distinguished as follows: *** = significant at 1 percent level; ** = significant at 5 percent level; * = significant at 10 percent level.

Table 4. Regression on fiscal decentralization, poverty, and quality of government

Independent Variable	Dependent Variable: Headcount Poverty
	Fixed Effect (1)	Random Effect (2)	PFGLS (3)	PFGLS (4)	PFGLS (5)	Fixed Effect (6)	Random Effect (7)	PFGLS (8)	PFGLS (9)	PFGLS (10)
rev	−1.75** (0.82)	−1.42*** (0.58)	−0.24 (0.17)	−0.96* (0.54)	−1.29*** (0.500)
rev x qog	1.56** (0.63)	1.57*** (0.50)		1.58*** (0.48)	1.46*** (0.50)
revsq	0.02* (0.009)	0.01** (0.007)		0.006 (0.007)	0.014** (0.006)
exp						−1.18 (1.01)	−0.99** (0.47)	−0.08 (0.14)	−0.67 (0.51)	−0.87** (0.43)
exp x qog						1.55*** (0.62)	1.52*** (0.43)		1.47*** (0.42)	1.40*** (0.45)
expsq						0.01 (0.01)	0.009 (.006)		0.002 (0.007)	0.008 (0.005)
qog	−44.87*** (16.87)	−44.77*** (12.19)		−34.41*** (14.47)	−41.67*** (13.36)	−44.36** (20.51)	−45.20*** (12.67)		−31.99*** (11.92)	−42.15*** (13.46)
gdppc (log)	−4.86** (2.21)	−7.17*** (1.32)		−6.05*** (1.79)	−7.86*** (1.29)	−4.96** (2.21)	−7.22*** (1.40)		−5.89*** (1.84)	−7.98*** (1.37)
gov	17.57 (13.94)	15.35 (13.47)		29.70*** (11.91)	14.40 (14.47)	26.54* (13.64)	21.27 (16.16)		32.66*** (12.94)	17.39 (17.06)
popgr	1.75 (1.90)	5.03*** (1.44)		5.72*** (1.54)	5.94*** (1.47)	3.27** (1.67)	5.97*** (1.33)		6.14*** (1.52)	6.60*** (1.45)
hci	−10.46 (7.76)	−7.97** (3.68)		−6.50 (4.51)	−6.40* (3.40)	−12.56 (8.59)	−8.56** (4.20)		−5.86 (4.76)	−6.91* (3.88)
R-squared	0.52	0.65				0.60	0.65
Obs	114	114	141	88	114	114	114	141	87	114
No. of countries	41	41	53	39	41	41	41	53	38	41
Hausman test	0.2256					0.5775

Number of parentheses are robust standard error. The asterix can be distinguished as follows: *** = significant at 1 percent level; ** = significant at 5 percent level; * = significant at 10 percent level.

Table 5. List of developing countries

No	Country	Region	Income Group	No	Country	Region	Income Group
1	Afghanistan	South Asia	Low income	28	Honduras	Latin America & Caribbean	Lower middle income
2	Albania	Europe & Central Asia	Upper middle income	29	India	South Asia	Lower middle income
3	Algeria	Middle East & North Africa	Upper middle income	30	Indonesia	East Asia & Pacific	Lower middle income
4	Angola	Sub-Saharan Africa	Lower middle income	31	Jordan	Middle East & North Africa	Upper middle income
5	Argentina	Latin America & Caribbean	Upper middle income	31	Kazakhstan	Europe & Central Asia	Upper middle income
6	Armenia	Europe & Central Asia	Lower middle income	33	Kyrgyz Republic	Europe & Central Asia	Lower middle income
7	Bangladesh	South Asia	Lower middle income	34	Lebanon	Middle East & North Africa	Upper middle income
8	Belarus	Europe & Central Asia	Upper middle income	35	Malaysia	East Asia & Pacific	Upper middle income
9	Bolivia	Latin America & Caribbean	Lower middle income	36	Morocco	Middle East & North Africa	Lower middle income
10	Brazil	Latin America & Caribbean	Upper middle income	37	Nigeria	Sub-Saharan Africa	Lower middle income
11	Bulgaria	Europe & Central Asia	Upper middle income	38	Pakistan	South Asia	Lower middle income
12	Cameroon	Sub-Saharan Africa	Lower middle income	39	Paraguay	Latin America & Caribbean	Upper middle income
13	China	East Asia & Pacific	Upper middle income	40	Peru	Latin America & Caribbean	Upper middle income
14	Colombia	Latin America & Caribbean	Upper middle income	41	Philippines	East Asia & Pacific	Lower middle income
15	Costa Rica	Latin America & Caribbean	Upper middle income	42	Romania	Europe & Central Asia	Upper middle income
16	Côte d’Ivoire	Sub-Saharan Africa	Lower middle income	43	Senegal	Sub-Saharan Africa	Low income
17	Cuba	Latin America & Caribbean	Upper middle income	44	South Africa	Sub-Saharan Africa	Upper middle income
18	Dominica	Latin America & Caribbean	Upper middle income	45	Sri Lanka	South Asia	Lower middle income
19	Dominican Republic	Latin America & Caribbean	Upper middle income	46	Sudan	Sub-Saharan Africa	Lower middle income
20	Ecuador	Latin America & Caribbean	Upper middle income	47	Tajikistan	Europe & Central Asia	Lower middle income
21	Egypt, Arab Rep.	Middle East & North Africa	Lower middle income	48	Tanzania	Sub-Saharan Africa	Low income
22	El Salvador	Latin America & Caribbean	Lower middle income	49	Thailand	East Asia & Pacific	Upper middle income
23	Ethiopia	Sub-Saharan Africa	Low income	50	Tunisia	Middle East & North Africa	Lower middle income
24	Georgia	Europe & Central Asia	Upper middle income	51	Turkey	Europe & Central Asia	Upper middle income
25	Ghana	Sub-Saharan Africa	Lower middle income	52	Turkmenistan	Europe & Central Asia	Upper middle income
26	Guatemala	Latin America & Caribbean	Lower middle income	53	Ukraine	Europe & Central Asia	Lower middle income
27	Guinea	Sub-Saharan Africa	Low income