Template-type: ReDIF-Paper 1.0


Author-Name: Luiz de Mello
Author-Workplace-Name: OECD
Author-Workplace-Email: luiz.demello@oecd.org

Author-Name: Joao Tovar Jalles
Author-Workplace-Name: Instituto Superior de Economia e Gestao (ISEG), Universidade de Lisboa, Portugal
Author-Workplace-Email: joaojalles@gmail.com

Title: Parable of the Talents: Does Differentiated Decentralisation Improve Performance?

Abstract: The decentralisation of policy functions to subnational levels of government need not be uniform across same-level jurisdictions and may instead be differentiated to reflect differences in administrative capacity, preferences and needs. This paper examines whether differentiated arrangements that grant greater policy authority non-uniformly to selected jurisdictions are systematically associated with stronger economic performance. Using harmonised regional data for middle-tier jurisdictions across OECD countries, we combine cross-sectional, within-region and dynamic event-study approaches. Cross-sectional evidence shows that regions with differentiated authority tend to exhibit higher income levels than standard jurisdictions, even after controlling for observable fundamentals and time-invariant regional characteristics. However, within-region estimates reveal no performance gains following differentiation, and dynamic event-study evidence indicates no systematic improvement in economic outcomes after reforms are adopted. Together, these findings suggest that the income premia observed among differentiated regions primarily reflect long-standing structural characteristics rather than the causal effects of institutional reform.

Length: 24 pages

Creation-Date: 2026-01

File-URL: https://icepp.gsu.edu/files/2026/01/paper2603.pdf
File-Format: application/pdf

Handle: RePEc:ays:ispwps:paper2603