This paper discusses how decentralized countries can achieve sound fiscal relations between the central government and lower government levels. The concepts of 'vertical gap' and 'vertical balance' provide an analytical framework for identifying and addressing key challenges. These concepts can...

With the end of the commodity super cycle, Peru's potential growth has declined, raising questions of what government policies could do to help boost growth, including over the medium-term. Our econometric analysis shows that public investment multipliers have a larger effect on growth than...

Several transition economies have undertaken fiscal decentralization reforms over the past two decades along with liberalization, privatization, and stabilization reforms. Theory predicts that decentralization may aggravate fiscal imbalances, unless the right incentives are in place to promote...

The literature on fiscal federalism has amply discussed both the potential efficiency and welfare gains from decentralization and the potential trade-offs between decentralization and income redistribution. By contrast, it has generally put less emphasis on the effects of decentralization on...

Based on cross-country data for up to 78 countries, this paper shows that fiscal decentralization-the assignment of expenditure and revenue mobilization functions to subnational levels of government-is associated with various indicators of governance, such as corruption, rule of law, and...