Public Financing in Developing and Transition Countries

The widespread adoption of fiscal decentralization laws during the past 25 years can be mostly tracked to economic efficiency gains and nation-building objectives. Subnational governments (SNGs) in industrialized countries account for about twice the share of total government expenditures as in developing countries. Transition countries also assign more expenditure responsibilities to SNGs than do the developing countries. There has been little growth in the SNG expenditure or tax shares over the past three decades. We confirm the basic hypotheses that the SNG expenditure share is significantly higher in countries with higher incomes, larger populations, and a lower degree of corruption.