Ricerc@Sapienza

The virtues of fiscal decentralization are usually assessed against the provision of local public goods; little is said about its impact on public finances. There is a growing concern that public finances may be negatively affected when spending and taxing powers are delegated to subnational tiers of government, especially under adverse financial conditions. Our work proves that these concerns are unfounded.

This paper analyzes the relationship between fiscal decentralization, the duration of fiscal consolidation episodes, and their success for 17OECDcountries between 1978 and 2009. The consolidation of the general government budget appears to be of longer durationwhen expenditure decisions are more decentralized.We also find that transfers from higher levels of government are