Does Fiscal Decentralization Improve Health Outcomes? Evidence from a Cross-Country Analysis

While decentralization of fiscal responsibilities is one of the main objectives that has emerged in the agenda of national governments and international organizations, there is little empirical evidence of the potential benefits of this intervention. This paper is an attempt to fill, in part, the void of quantitative measurement. Using panel data on infant mortality rates, GDP per capita, and the share of public expenditures managed by local governments, we find that higher fiscal decentralization is consistently associated with lower mortality rates. Our results suggest that benefits of fiscal decentralization are particularly important for poor countries. The results also suggest that the positive effects that fiscal decentralization has on infant mortality rates increase in institutional environments that promote political rights. Fiscal decentralization also appears as a mechanism to improve health outcomes in environments with high levels of corruption. Finally, we find that environments with high levels of ethno-linguistic fractionalization tend to reduce the benefits from fiscal decentralization.