Does Fiscal Decentralization Kill Inclusive Growth? Evidence From African Countries

Abstract

ABSTRACT The pursuit of enhanced inclusive growth, a cornerstone of the Sustainable Development Goals (SDGs), has generated extensive scholarly discourse, particularly regarding its interplay with fiscal decentralization in Africa. This study evaluates fiscal decentralization's impact on inclusive growth across 26 African nations (2002–2019) using fixed effects, Driscoll–Kraay, and generalized least squares (GLS) estimators, with robustness checks via Lewbel 2SLS, system‐GMM, and Kinky least squares. Three key findings emerge: first, fiscal decentralization consistently and significantly undermines inclusive growth across all specifications and metrics. Second, a U‐shaped relationship mirrors the Kuznets curve hypothesis, where initial decentralization exacerbates inequality before yielding equitable gains at higher income thresholds. Third, governance quality encompassing corruption control, regulatory efficacy, and political stability moderates this relationship, underscoring institutional frameworks' pivotal role. To mitigate disparities, policymakers must empower local authorities with greater fiscal responsibility over revenue collection and expenditure allocation, ensuring transparency and accountability. Concurrently, reforms should strengthen tax systems, optimize public spending, and enhance redistribution mechanisms, aligning decentralization strategies with broader objectives of welfare enhancement and sustainable growth. Related Articles Asongu, Simplice, and Nicholas M. Odhiambo. 2023. “The Effect of Inequality on Poverty and Severity of Poverty in sub‐Saharan Africa: The Role of Financial Development Institutions.” Politics & Policy 51(5): 898‐918. https://doi.org/10.1111/polp.12558 . Nchofoung, Tii, Simplice Asongu, Vanessa Tchamyou, and Ofeh Edoh. 2022. “Gender, Political Inclusion, and Democracy in Africa: Some Empirical Evidence.” Politics & Policy 51(1): 137–55. https://doi.org/10.1111/polp.12505 . Asongu, Simplice A., Joseph Nnanna, and Vanessa S. Tchamyou. 2021. “Finance, Institutions, and Private Investment in Africa.” Politics & Policy 49(2): 309–51. https://doi.org/10.1111/polp.12395 .