Globalization and Fiscal Decentralization

The international integration of markets and the decentralization of authority within nation states are two defining trends of the contemporary era. A popular speculation is that globalization has caused a downward shift in the locus of governance by reducing the economic costs of smallness and allowing localities and regions with distinctive preferences to pursue their own political and economic strategies (Alesina & Spolaore 1997, Bolton & Roland 1997). This chapter analyzes these claims by examining the location of fiscal authority within states. Using a large cross-country data set composed of expenditure and revenue decentralization data for the 1980s and 1990s, it demonstrates a rather striking relationship— international market integration has actually been associated with fiscal centralization rather than decentralization.