Decentralization and the post-war political economy

Abstract

This paper uses cross-national data for 21 OECD nations to examine whether there is any evidence of a connection between measures of political and fiscal decentralization and the major, long-term, performance parameters of the post-war political economy. The findings of what is necessarily an exploratory analysis of a wide rage of policy outcomes suggest that low levels of fiscal centralization appear to have restrained post-war inflationary pressures and gone along with higher rates of post-war economic growth. However, no evidence is found to link fiscal decentralization with post-war labour market performance. While the balance of evidence indicates that measures of political decentralization do not have any significant impact on macroeconomic outcomes, the study confirms the standard finding in the literature that federalism and other decentralized constitutional arrangements impede the expansion of the socially protective state.