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Unfunded mandates and the economic impact of decentralisation. When finance does not follow function

Rodríguez-Pose, Andrés ORCID: 0000-0002-8041-0856 and Vidal-Bover, Miquel (2022) Unfunded mandates and the economic impact of decentralisation. When finance does not follow function. Political Studies. ISSN 2041-9066

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Identification Number: 10.1177/00323217221136666

Abstract

Decentralisation has frequently been sold as a means to increase well-being and development. Yet, questions remain as to whether decentralisation improves economic performance. This is possibly because decentralisation processes have often led to ‘unfunded mandates’, that is, a mismatch between the powers transferred to subnational tiers of government and the resources allocated to them. In this article, we analyse how unfunded mandates shape regional economic growth across 518 regions in 30 Organisation for Economic Co-operation and Development countries over the period 1997–2018. There is a negative, statistically significant, and robust impact of unfunded mandates on economic growth. This effect is higher in more politically and less fiscally decentralised regions and in regions with a higher level of wealth. Unfunded mandates thus represent a serious drag on the potential positive economic effect of political decentralisation. Hence, for those benefits to materialise, better not more decentralisation – ensuring that finance follows function – should be pursued.

Item Type: Article
Official URL: https://journals.sagepub.com/home/PSX
Additional Information: © 2022 The Authors
Divisions: Geography & Environment
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
J Political Science > JF Political institutions (General)
JEL classification: H - Public Economics > H7 - State and Local Government; Intergovernmental Relations > H77 - Intergovernmental Relations; Federalism; Secession
O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output (Income) Convergence
H - Public Economics > H7 - State and Local Government; Intergovernmental Relations > H70 - General
Date Deposited: 05 Oct 2022 12:06
Last Modified: 23 Jun 2024 23:28
URI: http://eprints.lse.ac.uk/id/eprint/116908

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