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government, decentralization as a response in terms of
specialization
to grow-
ing international exposure, and finally decentralization as a response to the
demands
by social and political groups mobilized around cleavages other than
those of interest in this topic (most prominently religious, cultural, and identity
driven political mobilization).
The
functional
logic posits that as government size grows there are efficiency
gains associated with decentralization. Based on standard welfare economics
assumptions the intuition behind this logic is that delegation across levels of
government will allow the public sector to meet an ever growing stream of
demands (Oates
1991
; Persson and Tabellini
2003
). To evaluate and control
for these effects, the models include two variables: total taxation as a percentage
of GDP and a measure of GDP growth.
8
The
specialization
logic suggests that in an increasingly integrated economy,
regional differences exacerbate and economic actors will benefit from spe-
cializing to compete. As regional economies specialize, fiscal structures must
respond to increasingly diverse circumstances by decentralizing (Alesina and
Spolaore
2003
; Kessing, Konrad and Kotsogiannis
2007
; Stegarescu
2009
). To
control for the potential effects of this process, I proxy international exposure
by country size. The latter is well known to correlate negatively with expo-
sure, as larger domestic markets reduce the need for economic integration (for
empirical support on this, see Alesina and Wacziarg
1998
).
Finally, to control for alternative sources of social and political demand
for larger levels of political autonomy across the board, I control for ethnic
fractionalization. The choice of this particular control follows from the well-
established link between the existence of multiple cultural, linguistic and/or
religious identities and the use of decentralized political arrangements to accom-
modate them (Linz
1997
; Stepan
2001
). Put briefly, decentralized/federal poli-
ties are more likely to emerge in ethnically, linguistically, and/or culturally
fragmented social contexts. The expected direction of the relation is clear.
Notwithstanding the inherent limitations of any measurement of fractionaliza-
tion, the higher its values the higher the expected levels of decentralization.
I turn now to the findings displayed in
Table 8.2
. I center the discussion
around the mechanism highlighted by the theoretical argument, the interaction
between the geography of inequality and the system of representation.
9
8
I use a measure of GDP growth rather than a measure of income per capita because OECD
countries show relatively similar levels of economic development relative to the rest of the
growth. Growth rates vary more, potentially triggering the logic associated with functional
explanations of decentralization.
9
The control variables show the anticipated effects. In line with the functional logic, total taxation
shows a positive and significant impact on the decentralization of interpersonal redistribution.
In contrast, the indicator of national income growth adds nothing to the explanation of levels
of fiscal decentralization in the OECD. The findings are also consistent with the specialization
and demand logics discussed above (Panizza
1999
). Both ethnic fractionalization and country
size are positive and significantly associated with higher levels of fiscal decentralization across
the different specifications.
