Fiscal Decentralisation and Poverty in South Africa: Evidence from Panel Data Analysis

This paper examines the dynamic relationship between fiscal decentralisation and poverty in South Africa within a panel data framework. The data used covers the period 2005 to 2011 for the eight metropolitan municipalities making a total of 56 observations. We use household consumption expenditure per capita as a proxy for poverty and the ratio of metropolitan expenditure to national government expenditure as fiscal decentralisation. The results from a panel VAR estimated with GMM, show a negative short run effect of fiscal decentralisation on household consumption per capita in South Africa. These results have important policy implications.