The Role of Subcentral Governments' Autonomy and Finance for the Effects of Education Expenditure Decentralization.: Evidence from OECD Countries.

Abstract

This paper uses cross-national data to examine the effects of fiscal decentralization on educational outcomes in OECD countries. Measures of both expenditure and revenue decentralization are included, in order to account for the different dimensions of decentralization. Our estimated results show that the decentralization of education expenditure responsibilities has a positive effect on educational outcomes. These positive effects will be higher the higher the autonomy of subcentral governments to decide on the different aspects of the education system, and the lower the percentage of their expenditure that is financed with conditional grants. In fact, positive effects of education decentralization could be offset if a high percentage of the subcentral government expenditure is financed with conditional grants from higher levels of government. In addition, we find that the effect of expenditure decentralization is higher the higher the percentage of taxes which are collected at the subcentral level of government, i.e. when subcentral governments are held accountable for taxing decisions.