DIRECT AND INDIRECT EFFECTS OF FISCAL DECENTRALIZATION ON ECONOMIC GROWTH
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This paper examines the direct and indirect effects of decentralization on economic growth that take place through transmission channels such as government efficiency, control of corruption, government sector size and the quality of living. A dynamic nature of growth, potential endogeneity and the distinction between short-and long-run effects are taken into account. Our findings support proactive government approach, including fiscal policy measures to stimulate demand, prevent decline of production and employment and rebuild trust in institutions. They question the current prevalent thinking about the beneficial effects of the reduction of government expenditure on economic growth.
280 – 306
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