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Korean Journal of Policy Studies
Graduate School of Public Administration, Seoul National University

Korean J. Policy Stud. 2011; 26(3):161-171

pISSN: 1225-5017, eISSN: 2765-2807

DOI: https://doi.org/10.52372/kjps26310

Article

Fiscal Decentralization and Economic Growth: A Test for Granger Causality

Illoong Kwon1
1Illoong Kwon is an assistant professor in the Graduate School of Public Administration at Seoul National University. Email: ilkwon@snu.ac.kr. This paper was supported by the Seoul National University Foundation in 2010.

© Copyright 2011 Graduate School of Public Administration, Seoul National University. This is an Open-Access article distributed under the terms of the Creative Commons Attribution Non-Commercial License (http://creativecommons.org/licenses/by-nc/4.0/) which permits unrestricted non-commercial use, distribution, and reproduction in any medium, provided the original work is properly cited.

Received: Nov 03, 2011; Revised: Nov 08, 2011; Revised: Dec 12, 2011; Accepted: Dec 14, 2011

Published Online: Dec 31, 2011

Abstract

This paper tests the existence and the direction of causality between fiscal decentralization and economic growth. The previous literature has implicitly assumed that decentralization causes economic growth, and has largely ignored the possibility that economic growth can cause fiscal decentralization as well. This paper applies the Granger-causality test to panel data from 21 countries between 1975 and 1995, and finds that fiscal decentralization does not cause economic growth, but that economic growth causes fiscal decentralization.

Keywords: fiscal decentralization; economic growth; Granger causality