Fiscal decentralization and inclusive growth: A study focusing on income redistribution

Abstract

The importance of inclusive growth, which includes both sustainable economic growth and the mitigation of class polarization, is being discussed in many countries. Notably, some studies have actively shown the relationship between fiscal decentralization and redistribution based on the decentralization theorem that fiscal decentralization affects the competitiveness of the economy and the performance of government. This paper empirically analyzed the effect of fiscal decentralization on inclusive growth focused on income redistribution by using linear regression with panel-corrected standard errors. The analysis showed that fiscal decentralization had a statistically significant impact on inclusive growth, particularly on redistribution indicators such as the Gini coefficient level and labor income share. As a result, fiscal decentralization, which transfers not only financial resources but decision-making authority to local governments, can contribute to reducing inequality by increasing the level of welfare for the people. ? 2020, Success Culture Press. All rights reserved.