The Impact of Fiscal Decentralisation on Local Economic Development in Serbia

  • Will Bartlett London School of Economics and Political Science
  • Katarina Đulić University of Graz
  • Sanja Kmezic Karl Franzens University of Graz
Keywords: Fiscal Decentralisation, Local Economic Development, Employment, Public Policy, Serbia

Abstract

Serbia is a transition country that has experienced strong negative spillover effects from the global financial crisis and the subsequent eurozone debt crisis. At the same time it is a candidate for accession to the European Union. Success in local economic development is likely to affect prospects for economic recovery and a successful EU integration process and the paper analyses the contribution of fiscal decentralisation to successful local economic development. The analysis is based upon a cross-section time-series regression model that reveals a positive impact of local public expenditure on economic development. Expenditure on education has a particularly strong effect on local economic development, as does investment per capita from both public and private sources. The conclusion of the paper is that local economic development has been enhanced by the fiscal decentralisation that has taken place in Serbia.

References

Avlijaš, S. & Bartlett, W. (2011) The political economy of decentralisation and regional policy in Serbia: Choices and outcomes, LSEE Papers on Decentralisation and Regional Policy, 3 (London: London School of Economics and Political Science).

Bardhan, P. (2002) Decentralization of governance and development, Journal of Economic Perspectives, 16(4), pp. 185-205, https://doi.org/10.1257/089533002320951037.

Bartlett, W. (2013) Structural Unemployment in the Western Balkans: Challenges for Skills Anticipation and Matching Policies, European Planning Studies, 21(6), pp. 890-908, https://doi.org/10.1080/09654313.2012.722933.

Bartlett, W. & Prica, I. (2013) The deepening crisis in the European super-periphery, Journal of Balkan and Near Eastern Studies, 15(4), pp. 367-382, https://doi.org/10.1080/19448953.2013.844587.

Bartlett, W. & Uvalić, M. (eds) (2013) The Social Consequences of the Global Economic Crisis in South East Europe (London: LSEE – Research on South Eastern Europe).

Bartlett, W., Maleković, S. & Monastiriotis, V. (eds.) (2013) Decentralisation and Local Development in South East Europe (London: Palgrave Macmillan), https://doi.org/10.1057/9781137295651.

Bartlett, W., Kmezić, S. & Đulić, K. (eds) (2018) Fiscal Decentralisation, Local Government and Policy Reversals in Southeastern Europe (London: Palgrave Macmillan), https://doi.org/10.1007/978-3-319-96092-0.

Bell, M., Brunori, D., Green, R., Wolman, H., Cordes, J. & Qadir, T. (2005) State and local fiscal policy and economic growth and development, GWIPP Working Paper Series, 26 (Washington DC: George Washington Institute for Public Policy).

Blair, J. (1995) Local Economic Development (Thousand Oaks, CA: Sage Publications).

Bloechliger, H. (2013) Decentralization and economic growth Part 1: How fiscal federalism affects long-term economic growth, OECD Working Papers on Fiscal Federalism, 14 (Paris: OECD).

Bloechliger, H. & Égert, B. (2013) Decentralization and economic growth, Part 2, OECD Working Papers on Fiscal Federalism, 15 (Paris: OECD).

Bodman, P. (2011) Fiscal decentralization and economic growth in the OECD, Applied Economics, 43(23), pp. 3021-3035, https://doi.org/10.1080/00036840903427208.

Buser, (2011) The impact of fiscal decentralization on economic performance in high-income OECD nations: an institutional approach, Public Choice, 149(1-2), pp. 31-48, https://doi.org/10.1007/s11127-011-9827-6.

Calamai, L. (2009) The Link between Devolution and Regional Disparities: Evidence from the Italian Regions, Environment and Planning A, 41(5), pp. 1129-1151, https://doi.org/10.1068/a40282.

Canaleta, C. G., Arzoz, P. P. & Garate, M. R. (2004) Regional economic disparities and decentralisation, Urban Studies, 41(1), pp. 71-95, https://doi.org/10.1080/0042098032000155696.

Cantarero, D. & Gonzalez, P. P. (2009) Fiscal decentralization and economic growth: evidence from Spanish regions, Public Budgeting & Finance, 29(4), pp. 24-44, https://doi.org/10.1111/j.1540-5850.2009.00941.x.

Cato Institute (2015) The World Misery Index: 108 Countries (Washington, DC: Cato Institute).

Ebel, R. & Yilmaz, S. (2002) On the measurement and impact of fiscal decentralisation, The World Bank Policy Research Working Paper, WP (2809) (Washinton DC: World Bank), https://doi.org/10.1596/1813-9450-2809.

Ezcurra, R. & Pascual, P. (2008) Fiscal Decentralization and Regional Disparities: Evidence from Several European Union Countries, Environment and Planning A, 40(5), pp. 1185-1201, https://doi.org/10.1068/a39195.

Gil-Serrate, R., Lopez-Laborda, J. & Mur, J. (2011) Revenue Autonomy and Regional Growth: An Analysis of the 25-Year Process of Fiscal Decentralisation in Spain, Environment and Planning A, 43(11), pp. 2626-2648, https://doi.org/10.1068/a43352.

Iimi, A. (2005) Decentralization and economic growth revisited: an empirical note, Journal of Urban Economics, 57(3), pp. 449-461, https://doi.org/10.1016/j.jue.2004.12.007.

Independent Evaluation Group (2008) Decentralization in Client Countries: An Evaluation of World Bank Support, 1990-2007 (Washington, DC: World Bank).

International Labour Organization (n.d.) Trends Econometric Models: Where is the unemployment rate the highest in 2014?, available at: https://www.ilo.org/global/about-the-ilo/multimedia/maps-and-charts/WCMS_233936/lang--en/index.htm (July 10, 2019).

Kmezić, S., Đulić, K., Jocović, M. & Kaluđerović, J. (2016a) Fiscal Decentralisation and Local Government Financing in Serbia and Montenegro (Maribor: Institute for Local Self-Government and Public Procurement), https://10.4335/978-961-6842-69-3.

Kmezić, S., Kaluđerović, J., Jocović, M. & Đulić, K. (2016b) Fiscal decentralisation and local government financing in Montenegro from 2002 to 2015, Lex Localis - Journal of Local Self-Government, 14(3), pp. 431-450, https://doi.org/10.4335/14.3.431-450(2016).

Koczan, Z. (2015) Fiscal deficit and public debt in the Western Balkans: 15 years of economies transition, IMF Working Paper WP/15/172 (Washington DC: Internatonal Monetary Fund), https://doi.org/10.5089/9781513566399.001.

Kyriacou, A. P., et al. (2015) Fiscal decentralization and regional disparities: The importance of good governance, Papers in Regional Science, 94(1), pp. 89–107, https://doi.org/10.1111/pirs.12061.

Levitas, A. (2010) The Effects of the Suspension of Serbia’s Law on Local Government Finance on the Revenue and Expenditure Behavior of Local Governments: 2007-2009. A policy note for the roundtable on “Sharing the Burden of Intergovernmental Reform” (Rep.) Belgrade, Serbia: USAID/MEGA.

Martinez-Vazquez, J. & McNab, R. M. (2003) Fiscal Decentralization and Economic Growth, World Development, 31(9), pp. 1597-1616, https://doi.org/10.1016/S0305-750X(03)00109-8.

Nguyen, L. P. & Anwar, S. (2011) Fiscal decentralisation and economic growth inas Vietnam, Journal of the Asia Pacific Economy, 16(1), pp. 3-14, https://10.1080/13547860.2011.539397.

Rodden, J. (2004) Comparative federalism and decentralization: On meaning and measurement, Comparative Politics, 36(4), pp. 481-500, https://10.2307/4150172.

Rodriguez-Pose, A. (2009) Fiscal decentralization and economic growth in Central and Eastern Europe, Growth and Change, 40(3), pp. 387-417, https://10.1111/j.1468-2257.2009.00488.x.

Rodriguez-Pose, A. & Bwire, A. (2004) The economic (in)efficiency of devolution, Environment and Planning A, 36, pp. 1907-1928, https://10.1068/a36228.

Rodriguez-Pose, A. & Ezcurra, R. (2009) Does decentralization matter for regional disparities? A cross-country analysis, Journal of Economic Geography, 10(5), pp. 619-644, https://doi.org/10.1093/jeg/lbp049.

Rodriguez-Pose, A. & Ezcurra, R. (2011) Is fiscal decentralization harmful for economic growth? Evidence from the OECD countries, Journal of Economic Geography, 11(4), pp. 619-643, https://doi.org/10.1093/jeg/lbq025.

Rodriguez-Pose, A. & Gill, N. (2004) Is There a Global Link Between Regional Disparities and Devolution?, Environment and Planning A, 36(12), pp. 2097-2117, https://doi.org/10.1068/a362.

Rodríguez-Pose, A., Tijmstra, S. A. R. Bwire, A. (2009) Fiscal decentralisation, efficiency, and growth, Environment and Planning A, 41(9), pp. 2041-2062, https://doi.org/10.1068/a4087.

Rodríguez‐Pose, A. & Gill, N. (2005) On the ‘economic dividend’ of devolution, Regional Studies, 39(4), pp. 405-420, https://doi.org/10.1080/00343400500128390.

Sagbas, I., Sen, H. & Kar, M. (2005) Fiscal decentralisation, the size of the public sector, and economic growth in Turkey, Environment and Planning C: Government and Policy, 23(1), pp. 3-19, https://doi.org/10.1068/c0421.

Sen, A. (1999) Development as Freedom (New York, NY: Anchor Books).

Statistical Office of the Republic of Serbia, (2005-2014) Municipalities and Regions in the Republic of Serbia (Belgrade: Statistical Office of the Republic of Serbia), available at: http://www.stat.gov.rs/en-US/publikacije/?d=13&r= (July 10, 2019).

Stegarescu, D. (2005) Public sector decentralisation: measurement concepts and recent international trends, Fiscal Studies, 26, pp. 301-333, https://doi.org/10.1111/j.1475-5890.2005.00014.x.

Thiessen, U. (2003) Fiscal decentralisation and economic growth in high-income OECD countries, Fiscal Studies, 24(3), pp. 237-274, https://doi.org/10.1111/j.1475-5890.2003.tb00084.x.

Thornton, J. (2007) Fiscal decentralization and economic growth reconsidered, Journal of Urban Economics, 61(1), pp. 64-70, https://doi.org/10.1016/j.jue.2006.06.001.

Woller, G. M. & Phillips, K. (1998) Fiscal decentralisation and LDC economic growth: An empirical investigation, Journal of Development Studies, 34(4), pp. 139-148, https://doi.org/10.1080/00220389808422532.

Published
2020-01-26
Section
Article