Relationship between Fiscal Decentralization and Economic Growth in European Union Countries and Slovakia
Relationship between Fiscal Decentralization and Economic Growth in European Union Countries and Slovakia

Summary/Abstract: Results in the area related to fiscal decentralization and economic growth are frequently inconsistent and somewhat ambiguous, although the fiscal federalism theory clearly promotes the fiscal decentralization gains in favour of efficiency and economic growth. Paper focuses on investigating the inverted U-shaped relationship between fiscal decentralization and economic growth using the GMM model (Generalized Method of Moments). After these results were obtained, real values of Slovakia are compared to GMM – EU-26 trend. The results of GMM estimation include a threshold value of fiscal decentralization, revealing the point at which a positive relation between fiscal decentralization and economic growth turns into negative. GMM estimation of the EU-26 countries sample confirms the inverted U-shaped relationship in case of revenue and tax decentralization. Expenditure decentralization seems to be insignificant. The case of Slovakia shows the conformity with the EU trend, what is evident in the case of tax decentralization and less in revenue decentralization.

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