Fiscal decentralization and the size of government: an empirical test of the Leviathan hypothesis

Abstract

results (i) resource decentralization and expenditure decentralization reduce the size of the central public sector, while tax decentralization increases it; (ii) fiscal decentralization (resources, expenditure and taxes) tends to increase the size of the local public sector, suggesting the existence of a local Leviathan in sub-Saharan Africa. Thus, as Brennan and Buchanan (1980) suggested, decentralized countries have less expensive national public sectors. However, as Oates (1985) and Wallis and Oates (1988) suspected, the allocation of a wider range of functions to government in the event of decentralization suggests a positive association between greater fiscal decentralization and the size of the local public sector.