Fiscal decentralization and economic growth in eu countries from the country size, government structure, and EU accession perspective

Abstract

The aim of the paper is to examine the relationship between the fiscal decentralization and economic growth in European Union countries, with respect to the country size, the number of government level, and EU accession. The study was conducted on the basis of data from Eurostat and the World Bank. A sample of EU countries in the period 1999–2019 is investigated. Panel data models based on various estimators are employed to estimate the relationship between the growth of GDP as dependent variable and fiscal decentralization as explanatory variable, while fiscal decentralization is measured in different ways. The paper demonstrates that the time-fixed effects model best describes the dependence of GDP growth on fiscal decentralization as the main explanatory variable and other variables impacting economic growth. On the basis of estimated parameters of the econometric panel model, the original research hypothesis that fiscal decentralization has a significant impact on economic growth is proven, with the intensity and direction of impact depending on 1) the country’s size; 2) the number of government levels; and 3) the period of the country’s EU accession.