Income Inequality, Decentralisation, and Regional Development in Western Europe

Abstract

Devolution can have incongruous effects on equality. Decentralisation of powers and resources to lower tiers of government can either increase or reduce interpersonal inequalities, depending on characteristics of the devolved region. This column uses data from regions of Western Europe to show that greater fiscal decentralisation is associated with lower income inequality. Devolution is a global trend, advocated by international organisations, including both the World Bank and the OECD, as a mechanism for achieving local prosperity. Decentralisation of powers and resources to lower tiers of government can-under different circumstances and in different contextscontribute to both an increase and a reduction interpersonal inequalities. Decentralisation can reduce interpersonal inequalities by: Exploiting the information advantage over central government and increasing the degree of efficiency in the allocation of resources, better matching to the preferences of local citizens. Bringing government closer to the people and providing better information about local preferences to inform the optimal mix of local policies. Promoting greater voice, transparency, and participation through enhanced accountability to local citizens. Limiting the opportunities for corruption and interest-group capture of the returns of public policies through greater transparency and accountability. Conversely, decentralisation can increase interpersonal inequalities in the following ways: It weakens the capacity of central government to play an equalising role to achieve a balanced distribution of income through social and territorial transfers from the rich to the poor. Diversity and variation in the availability and quality of public services between places generates unequal individual access and provision, regardless of preferences-in England, for instance, this is the so-called 'postcode-lottery' issue.

Public Finance, Economic Growth and Inequality

“…Similar to the literature on growth, the theoretical and empirical literature provides no clear-cut answer on the link between fiscal decentralisation and inequality (Tselios, 2012). Fiscal decentralisation can reduce inequality.…”

Spatial Inequalities and Economic Growth

“…The authors investigate this issue using a sample of 23 OECD countries over the period 1971-2000 and employing a range of measures of fiscal decentralisation covering the degree of both fiscal and political autonomy of sub-national jurisdictions. The use of these measures of decentralisation complements and extends existing analyses on the topic (e.g., Tselios et al, 2012), providing additional evidence not simply about the link between decentralisation and income inequality but also about the link between the latter and different models of decentralisation (e.g., spending versus tax autonomy). The results of the empirical analysis confirm the underlying hypothesis of the paper, highlight the importance of both the nature of fiscal decentralisation -expenditure versus revenue -and the extent to which independent spending responsibility and taxing powers are actually assigned to local governments.…”

Local government, political decentralisation and resilience to natural hazard-associated disasters

“…Although central government may be better placed to respond due to greater access to resources, locally elected governments are better placed geographically and politically to respond to local needs, due to their proximity to those affected (Adger, Hughes, Folke, Carpenter, & Rockstrom, 2005;Chhotray & Few, 2012;Norris et al, 2008;Rodríguez-Pose & Ezcurra, 2011). Relatively, more decentralised countries may fare better when disasters occur in terms of their effects on the population and on the economy, because local and regional officials are better able to set the optimal mix of local and regional policies prior to the disaster event than bureaucrats in distant central governments (de Mello, 2011;Lessmann, 2009;Tselios, Rodríguez-Pose, Pike, Tomaney, & Torrisi, 2012). It has been argued that decentralisation increases social capital, which has been shown to improve community resilience to natural hazard-associated disasters (e.g.…”

“…There are countries where both the legislature and executive are locally elected, countries where the executive is appointed but the legislature is locally elected, and countries where neither the executive nor the legislature are locally elected, when it comes to the municipal governments or the state/province governments. We argue that countries with different types of local representation are likely to perform differently in disaster recovery, due to differences in approaches to post-disaster macroeconomic stabilisation (Oates, 1999;Tselios et al, 2012) and in regional redistribution of postdisaster resources. The role of local representation is a key factor because an appropriate political setting for downward accountability requires a suitable environment for local elected leaders to act independently and responsively (Yilmaz, Beris, & Serrano-Berthet, 2008).…”