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Ahmad is Advisor in the Fiscal Affairs Department, Brosio is Professor of Economics at the University of Turin, and Tanzi was formerly Director of the Fiscal Affairs Department and State Secretary, Italian Ministry of Finance. Paper prepared for the International Conference on Land Policies and Fiscal Decentralization, June 4–5, 2007, Cambridge, Massachusetts. Assistance received from Roberto Zanola is greatly appreciated. Helpful comments from Greetje Everaert, Ashoka Mody, and Paul Bernd Spahn are acknowledged.
Popular election of the heads of the executive of all levels of government is considered to be the most important component of the recent decentralization process in Italy because it increased the stability of subnational governments and increased, through expanded political legitimacy of mayors and governors, their bargaining power vis à vis the central government.
Deconcentrated spending assumes that there is full information on subnational operations, without which tied transfers could degenerate into spending others’ moneys without adequate supervision.
Several papers are on Spain, which provides excellent opportunities for testing theories about the effect of decentralization (some are summarized in Table 3 and discussed below). First, Spain has experienced an important process of fiscal decentralization since the reestablishment of democracy and the its constitution of 1978. Second, the timing of decentralization has not been equal for all Autonomous Communities (AC). Some ACs have assumed devolved responsibilities earlier than others, thus allowing researchers to examine decentralization effect with reference to two distinct samples: one with decentralized and the other with still centralized responsibilities.
The dependent variable is usually a comparable but simple indicator of policy outcomes, whereas decentralization is represented by fiscal indicators based mostly on the relative shares of central and subnational governments in total national public expenditure, revenue, or both.
Some problems should be noted in applying this measure of outcome. Cantons are mostly responsible for upper-secondary education, whereas local governments are fully responsible for primary education. Their expenditure and policies are thus effecting minimally on Maturité. To partially account for this fact, Barankay and Lockwood (2006) relate results at Maturité to the degree of decentralization in the years when the concerned students were enrolled in primary schools, but clearly the main effect on Maturité derives from years spent in secondary education. Finally, there is no federal intervention in exams that could ensure uniformity of criteria.
Consider a numerical example. In province A subnational expenditure for health is 80 and federal 20. In province B the same numbers are 10 and 90. The indicator will have a value of 0.8 in A and of 1.0 in B. It means simply that subnational governments in province A spend more for health than the corresponding governments in province B. This increased spending could be compensated by lower expenditure for education, but it is not referred per se to any difference in decentralization. On the other hand, federal expenditure is for native Canadians, military personnel, inmates of federal penitentiaries, and the Royal Mounted Police, which has no relationship with decentralization.