Template-type: ReDIF-Paper 1.0
Author-Name: Benard Akalbeo
Author-Email: bakalbeo1@gsu.edu
Author-Workplace-Name: International Center for Public Policy, Georgia State University
 

Author-Name: Jorge Martinez-Vazquez
Author-Email: jorgemartinez@gsu.edu
Author-Workplace-Name: International Center for Public Policy, Georgia State University
 

Author-Name: Bauyrzhan Yedgenov
Author-Email: byedgenov1@gsu.edu
Author-Workplace-Name: International Center for Public Policy, Georgia State University




Title: Fiscal Decentralization and Structural versus Cyclical Unemployment Levels

Abstract: The literature on fiscal federalism has long debated whether fiscally decentralized 
countries are inherently more economically and fiscally unstable. This paper 
contributes to this literature by analyzing the impact of fiscal decentralization on 
one of the most important dimensions of macroeconomic stability, the 
unemployment level. This is the first study in the literature to address the 
relationship between fiscal decentralization and unemployment rate at the country 
level, especially using the decomposition between its structural and cyclical
components. The fundamental relationship is explored empirically by using an 
instrumental variable approach on a panel of 52 countries between 1991 and 2012.
The main result is that more fiscally decentralized countries in general tend to 
experience lower unemployment rates. We also find, as theoretically anticipated,
that the impact of fiscal decentralization is mostly on structural unemployment 
compared to cyclical unemployment. The results are robust to alternative 
specifications.

Keywords: fiscal decentralization, macroeconomic stability, business cycle, 
unemployment, structural unemployment, cyclical unemployment

Length: 45 pages

Creation-Date: 2022-08-01

File-URL: https://icepp.gsu.edu/files/2022/08/paper2206.pdf

File-Format:application/pdf

Handle: RePEc:ays:ispwps:paper2206