Regional Equity and Fiscal Decentralization: Which States Stay Robust During the Economic Downturn?

Abstract

Location and level of government are critical factors that promise statewide economic growth. While existing research is prone to focus on the role that the factors consistently contribute to growth, there is limited understanding of how the structural varieties of geographical concentrations and decentralization could be effective during economic crises. Based on data from 29 OECD countries between 2000 and 2019, this study finds mixed empirical findings. First, the result shows the degree of concentration standing for regional inequity per se has adverse effects on the growth, while allowing states to withstand economic crises, having a modest decline. Second, oppositely, the fiscal decentralization rapidly enhances nationwide economic growth but is prone to experience far more losses than its less decentralized counterparts. The patterns point out some limited application of both regional equity and fiscal decentralization for economic development, leaving an implication that local governance may be differently managed in consideration of economic shocks.