Factors of Tax Decentralization in OECD-Europe Countries

The article deals with the issue of tax decentralization to local government. The aim of the article is to describe the tax decentralization to local governments with respect to its possible determinants and to verify empirically the relevancy of theoretical factors generally explaining fiscal decentralization to the tax decentralization. The analysis is based on data panel of OECD-European covering the period of 1995 to 2013. Upon these data we build panel regression model. Estimated equations provide support for the hypotheses that the countries with larger geographical area tend to decentralize more tax revenue to local governments. Surprisingly, the slope parameters of population and population density have negative sign and are statistically significant. The real GDP per capita proved to be a significant factor of tax decentralization. The inequality of household income, as well as the share of urban population, although having correct sign, is not statistically significant. The size of redistribution function is highly statistically significant, suggesting that countries with higher redistribution decentralize more taxes to local government. The heterogeneity variable showed results with correct sign, where religious and language fractionalization were statistically significant. The very fact that the country is or is not federated or belong or not to group of Central and Eastern European Country seems to be unimportant for tax decentralization to local government level.