Federalism, but how? The impact of vertical fiscal imbalance on economic growth. Evidence from Belgium. (3rd September 2021)

• Record Type: Journal Article
• Authors: Mitra, Alessio; Chymis, Athanasios
• Is Part Of: Economics & politics. Volume 34:Number 2(2022)
• Page Start: 322
• Page End: 350
• Publication Date: 2021-09-03
• Subjects: causal inference -- economic growth -- federalism -- synthetic control method -- vertical fiscal imbalance; Economic policy -- Periodicals; Political science -- Periodicals; 330.9
• DOI: 10.1111/ecpo.12200
• Languages: English
• ISSNs: 0954-1985

Abstract

Abstract: This paper applies both parametric and nonparametric synthetic control methods in the case of a specific federal reform. It evaluates the impact of Belgium's constitutional federalism reform of 1993 on GDP per capita. The findings show a negative impact of the reform on economic growth. This negative impact ceases soon after 2001, when a subsequent reform reduced the vertical fiscal imbalance that characterized the 1993 federal reform. It is argued that the presence of a strong federalism with subnational spending autonomy and, conversely, a centralized tax system, enhanced pork barrel spending, a common pool problem, thus damaging economic growth.