Abstract
This thesis established the impact of fiscal federalism on some key sustainability and macroeconomic issues. A number of cross-country empirical and panel econometric analyses were carried out to investigate the relationship between fiscal federalism and sustainable development, income inequality, fiscal discipline, and natural resource management. The influences on the relationships of some important theoretical propositions surrounding the relationships, which have hitherto not been empirically verified were also empirically explored. The thesis comprises six chapters, including a chapter for the general introduction, four empirical studies chapters, and the conclusion and policy implementation chapter. Chapter 1 provides the overview and general introduction to the study. Chapter 6 gives the overall conclusion and policy implication of the study. The empirical studies chapters explore the relationship between fiscal federalism and the aforementioned macroeconomic and sustainability issues.
The relationship between fiscal federalism and sustainable development was investigated in Chapter 2 using the difference and system Generalized Method of Moments as the main estimation technique. It was revealed that fiscal federalism has no significant impact on sustainable development, social development, and environmental and resource development, but positively impacts economic development. The inference from this is that as more countries get more fiscally decentralized, the discussions on their fiscal federalism design have been mainly based on economic development, leaving out the other two important dimensions of sustainable development.
In chapter 3, the income inequality impact of fiscal federalism in selected federations was analyzed using the Pooled Mean Group estimating technique. The results revealed that fiscal federalism has an income inequality-reducing effect by itself and when combined with good governance quality. It was further shown that certain peculiar features of federation boost the income inequality-reducing impact of fiscal federalism. These features are symmetric federalism and homogenous federalism. Chapter 4 characterized the fiscal discipline impact of fiscal federalism using panel quantile regressions within an instrumental variable framework. The results showed that the impacts of fiscal federalism on fiscal discipline vary along the conditional distributions of the fiscal discipline, with a negative effect at the lower quantile level and a positive effect at the upper quantile level. Furthermore, it was shown that a good institutional framework and being a federation, each enhances the fiscal discipline impact of fiscal federalism.
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The fourth empirical chapter is chapter 5. It explores fiscal federalism’s natural resource management impact, using the panel spatial regression technique to account for the externality or spillover effect of natural resource rent. Expenditure decentralization was found to have a negative impact on natural resource management, while revenue decentralization has no significant impact. Moreover, it was revealed that each of economic advancement and a nation being a federation positively influences the natural resource management impact of expenditure decentralization, but has a neutral influence on the natural resource management impact of revenue decentralization. The chapter suggests that for the natural resource management impact of fiscal federalism to be optimal, an appropriate balance between fiscal decentralization and fiscal centralization is required.
Keywords : Sustainable development, Fiscal federalism, revenue decentralization, expenditure decentralization, NSDI, Entropy method, Income inequality, Fiscal discipline, Panel quantile regression, Natural resource management, Panel spatial regression.
JEL Classification : D31, E63, H71, H72, H77, Q01, Q28, Q38, Q48.