The Korea Local Administration Review

The studies on fiscal decentralization have focused on the relationshipbetween fiscal decentralization and economic growth as well as the onebetween fiscal decentralization and economic efficiency. Definite conclusionsabout the relationship between fiscal decentralization and economic growth,however, have not been presented because it is a very complex relationshipthat is affected by a variety of factors including the interactions of the resultssuch as inter-regional equity, economic efficiency, macroeconomic stability,corruption, democratic governance, economic growth and etc. Therefore, theimpact of fiscal decentralization should be considered with the various effects ofit.From this perspective, this study is to analyze the impact of fiscaldecentralization on economic growth targeting 27 OECD countries. Especially,this paper focuses on the following two research purposes, having the potentialeffects of fiscal decentralization on macroeconomic stability in the model. First,a direct relationship between fiscal decentralization and economic growth isinvestigated. Second, this paper tries to find the relationship among fiscaldecentralization, macroeconomic stability, and economic growth.The results of the analysis first indicate that revenue decentralization haseffects of reducing consumer price inflation, providing positive effect onmacroeconomic stability. Second, fiscal decentralization is found to have anegative effect on economic growth. Finally, since the macroeconomic stabilityhas a positive effect on economic growth, the negative influence of fiscaldecentralization on economic growth would be somewhat mitigated by thepotential macroeconomic stability of fiscal decentralization.
□ Keywords: Fiscal Decentralization, Economic Growth, Macroeconomic Stability,Economic Efficiency