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The Role of Fiscal Decentralization in Reducing Poverty and Inequality: Empirical Evidence Using the Regional Authority Index

Papers favoring decentralization argue that subnational governments (SNGs) are better situated than the national government to ascertain citizens’ preferences, making SNGs more responsive to local needs through poverty-alleviating and inequality-reducing initiatives, among others. Several decentralization-related measures had been filed in the 18th Congress, including those calling for constitutional change of the system of government to promote broader regional autonomy and equitable wealth distribution. This paper aims to contribute to the national discussion on the role of decentralization in reducing poverty and inequality. By using the cross-country Regional Authority Index as measure of fiscal decentralization and by employing a fixed-effects model, this paper finds a significant and inverse relationship between the decentralization and poverty, and decentralization and inequality. One key finding is the importance of SNGs in co-determining national policies, such as the distribution of national taxes. This suggests the significance of a mechanism through which SNGs are represented and take part in decisions concerning national policies.


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