Fiscal decentralization, economic growth, and human development: Empirical evidence

Figures & data

Table 1. Definitions and sources

Variables	Name	Source
HDI	Human Development Index	UNDP
EG	Economics Growth (%)	UNDP
RD	Revenue-based decentralization (%)	IMF
ED	Expenditure-based decentralization (%)	IMF
TRD	Tax revenue-based decentralization (%)	IMF
PC	Physical capital (% of GDP)	UNDP
HC	Human capital (% population age over 25)	UNDP
PG	Population growth (%)	UNDP
TOP	Trade openness (% of GDP)	UNDP
FDI	Net Foreign Direct Investment Inflow(% of GDP)	UNDP
PSS	Size of public sector (% of GDP)	UNDP
FR	Freedom in the World Index	Freedom House

Table 2. Descriptive statistics

Variable	Observation	Mean	Standard Deviation	Min	Max
Revenue-based decentralization	126	20.20	20.92	0.02	89.10
Expenditure-based Decentralization	126	27.15	18.89	1.78	81.63
Tax revenue-based Decentralization	126	23.29	24.27	0.00	99.75
Economics Growth	126	1.77	2.27	−4.35	6.94
Human Development Index	126	0.82	0.09	0.66	0.94
Physical Capital	126	23.03	2.95	15.00	31.10
Human Capital	126	79.03	18.45	38.60	100.00
Population Growth	126	1.00	0.89	−0.42	8.33
Freedom in the World	126	44.19	27.43	11.00	95.00
Trade Openness	126	80.83	46.28	23.90	200.40
Foreign Direct Investment	126	3.08	3.87	−8.00	30.00
Size of Public Sector	126	23.76	10.55	3.90	47.50

Source: Authors’ calculation with Stata program.

Table 3. The simultaneous relationship between fiscal decentralizations, economic growth, and human development

Fiscal decentralization by	Revenue		Expenditure		Tax revenue
Estimatior	3SLS -GMM	GMM—HAC	3SLS -GMM	GMM—HAC	3SLS -GMM	GMM—HAC
Economics growth equation
Economics growtht-1	0.214***	−0.179**	0.19***	−0.232***	0.204***	−0.218***
	(0.069)	(0.0689)	(0.0723)	(0.073)	(0.0692)	(0.0803)
Fiscal decentralizationt-1	−0.063***	−0.131**	−0.074***	−0.121***	−0.052***	−0.097**
	(0.0083)	(0.0536)	(0.009)	(0.0293)	(0.0068)	(0.0454)
Human Development Index	0.368	−6.436	6.379**	11.462***	−0.991	−9.413*
	(2.4341)	(4.0323)	(3.0342)	(4.3614)	(2.3296)	(5.206)
Physical capital	0.013	0.07	0.034	0.195***	0.008	−0.031
	(0.0476)	(0.0841)	(0.05)	(0.0749)	(0.0475)	(0.1195)
Human capital	0.005	0.054*	−0.012	−0.021	0.009	0.063*
	(0.0103)	(0.0293)	(0.0126)	(0.0225)	(0.0102)	(0.0351)
Trade openness	0.007**	0.01	0.008**	0.006	0.006*	0.012
	(0.0032)	(0.0079)	(0.0034)	(0.0044)	(0.0032)	(0.0081)
Foreign direct investment	−0.185***	−0.211**	−0.148***	−0.213***	−0.188***	−0.233**
	(0.0471)	(0.1016)	(0.0507)	(0.0465)	(0.0474)	(0.0963)
Public sector size	−0.16***	−0.262***	−0.14***	−0.228***	−0.156***	−0.252***
	(0.0191)	(0.0759)	(0.0185)	(0.032)	(0.0188)	(0.076)
Constant	5.244***	10.019***	1.241	−1.366	6.113***	13.391***
	(1.8894)	(3.2597)	(2.23)	(3.0277)	(1.8075)	(5.0467)
Fiscal decentralization equation
Economics growth	−8.853***	−5.555***	−8.449***	−4.204***	−11.01***	−5.733***
	(1.7954)	(0.6755)	(2.0559)	(0.9476)	(2.1747)	(0.6871)
Human capital	0.243**	0.376***	0.162	0.326***	0.279**	0.424***
	(0.1057)	(0.1117)	(0.1177)	(0.1117)	(0.1277)	(0.1181)
Freedom in the World	0.006	0.079	−0.157**	−0.149**	0.064	0.061
	(0.0753)	(0.0627)	(0.0763)	(0.0676)	(0.0919)	(0.0703)
Trade openness	0.106**	0.079*	0.117***	0.086***	0.114**	0.091**
	(0.0408)	(0.0425)	(0.0434)	(0.0294)	(0.0494)	(0.0396)
Foreign direct investment	−2.126***	−1.242***	−1.708***	−1.549***	−2.653***	−1.425***
	(0.6548)	(0.4764)	(0.6355)	(0.3418)	(0.7917)	(0.4132)
Public sector size	−2.119***	−1.628***	−1.786***	−1.601***	−2.454***	−1.72***
	(0.2803)	(0.2109)	(0.2807)	(0.1651)	(0.3386)	(0.207)
Constant	62.993***	31.774***	71.85***	51.791***	72.932***	30.206***
	(14.4496)	(11.0337)	(15.8113)	(10.6333)	(17.4495)	(10.8791)
Human Development Index Equation
Fiscal decentralization	0.002***	0.003***	0.002***	0.003***	0.002***	0.002***
	(0.0002)	(0.0007)	(0.0003)	(0.0006)	(0.0002)	(0.0006)
Economics growth	−0.007**	−0.016***	−0.008**	−0.015***	−0.006*	−0.014***
	(0.0031)	(0.0035)	(0.0036)	(0.0023)	(0.0032)	(0.0036)
Population growth	−0.025***	0.032*	−0.035***	−0.037***	−0.018**	0.045**
	(0.0078)	(0.0165)	(0.0091)	(0.0074)	(0.0081)	(0.0201)
Freedom in the World	−0.002***	−0.002***	−0.002***	−0.002***	−0.002***	−0.003***
	(0.0002)	(0.0002)	(0.0002)	(0.0002)	(0.0002)	(0.0003)
Constant	0.913***	0.854***	0.894***	0.879***	0.912***	0.858***
	(0.0108)	(0.0274)	(0.0141)	(0.0174)	(0.0112)	(0.0294)
Test of overidentifying restrictions	10.56	8.78	9.13	14.08	10.69	9.90
P-value	0.81	0.89	0.85	0.72	0.80	0.83

Source: Authors’ calculation with Stata program. Note: *, **, and *** denote significance levels of 10%, 5%, and 1%, respectively. Standard errors of estimated coefficients in parentheses.

Figure 1. Relationship between revenue decentralization, economics growth, and human development (Source: UNDP and IMF).

Figure 2. Relationship between expenditure decentralization, economics growth, and human development (Source: UNDP and IMF).

Figure 3. Relationship between tax revenue decentralization, economics growth, and human development (Source: UNDP and IMF).

Table

IFS code	Country
193	Australia
122	Austria
912	Azerbaijan
124	Belgium
223	Brazil
156	Canada
233	Colombia
134	Germany
684	Mauritius
288	Paraguay
293	Peru
922	Russian Federation
199	South Africa
184	Spain
146	Switzerland
466	United Arab Emirates
111	United States
927	Uzbekistan