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Macroeconomic Instability And Fiscal Decentralization An Empirical Analysis

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Document pages: 16 pages

Abstract: The main objective of this paper is to fill a critical gap in the literatureby analyzing the effects of decentralization on the macroeconomic stability. Asurvey of the voluminous literature on decentralization suggests that thequestion of the links between decentralization and macroeconomic stability hasbeen relatively scantily analyzed. Even though there is still a lot of room foranalysis as far as the effects of decentralization on other aspects of theeconomy are concerned, we believe that it is in this area that a more thoroughanalyses are mostly called for. Through this paper, we will try to shed morelight on the issue notably by looking at other dimension of macroeconomicstability than the ones usually employed in previous studies as well as byexamining other factors that might accentuate or diminish the effects ofdecentralization on macroeconomic stability. Our results found thatdecentralization appears to lead to a decrease in inflation rate. However, wedo not find any correlation between decentralization with the level of fiscaldeficit. Our results also show that the impact of decentralization on inflationis conditional on the level of perceived corruption and political institutions.

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