## Fiscal Decentralization Improves Social Outcomes When Countries Have Good Governance

_IMF Working Papers, June 3, 2022_

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## Bibliographic details
- Authors: Ryota Nakatani, Qianqian Zhang, Isaura Garcia Valdes
- Published: June 3, 2022
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400211768.001

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### Research question and methods
- Does fiscal decentralization improve health and educational outcomes?
- Does this improvement depend on the quality of governance?
- How do fiscal decentralization and governance interact?
- Method: instrumental variable Tobit analysis of cross-country panel data.

### Key findings
- Negative effects of fiscal decentralization on health outcomes.
- The negative health effects of fiscal decentralization are more than offset by better governance.
- Education expenditure decentralization to subnational governments enhances educational outcomes.
- Countries can only reap the benefits from decentralization when the quality of their governance arrangements exceeds a certain threshold.
- Sequencing and staging of decentralization matter.

### Policy implications and recommendations
- Improve government effectiveness first to maximize benefits of fiscal decentralization.
- Strengthen control of corruption before or alongside decentralization reforms to maximize social outcome gains.
- Sequence and stage decentralization reforms rather than implementing full decentralization without governance improvements.

### Subject areas and keywords
- Subject: Corruption, Crime, Education, Expenditure, Fiscal federalism, Fiscal policy, Health, Health care spending
- Keywords: Corruption, decentralization matter, Education, education expenditure decentralization, Fiscal Decentralization, Fiscal federalism, Global, Governance, governance Indicator, government effectiveness, Health, Health care spending, health outcome, Subnational government

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- **Working Paper**
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_Source: https://www.imf.org/en/publications/wp/issues/2022/06/03/fiscal-decentralization-improves-social-outcomes-when-countries-have-good-governance-518882_