Fiscal decentralization: is it a good choice for the small new member states of the EU?
Fiscal decentralization: is it a good choice for the small new member states of the EU?

Summary/Abstract: The main purpose of this paper is to analyze the impact of fiscal decentralization on economic growth in six small new member state of the European Union, namely Cyprus, Malta, Slovenia, and the Baltic states – Estonia, Latvia and Lithuania for the period 2000-2010. The empirical analysis is based on the multiple regression method. The conclusion is that fiscal decentralization is a reliable instrument for an increase in budget performance efficiency in the small new member states of the EU. There is a positive relationship between the sub-national share of total government expenditure and revenue (used as measures of fiscal decentralization) and economy growth. At the same time during the analyzed period the sub-national revenue and expenditure presented as ratios to GDP have negatively affected economy growth in the analyzed countries. The relationship is not linear and the effects of changes in the ratios are not proportional. Because of that the policies promoting decentralization must be built on the base of precise analysis. However, the empirical analysis of fiscal decentralization is still at an early stage and it is premature to draw definitive conclusions from these preliminary results.

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