Determinants of Fiscal Decentralization - the Recent Evidence in European Countries

The article deals with the issue of government expenditure decentralization in European countries. The aim of the article is to empirically verify the theoretical determinants of government expenditure decentralization. The analysis is based on the data panel of 31 European countries covering the period of 1995 to 2016. Upon these data the random effects panel regression model is built and estimated. The estimated equations provide support for the hypotheses that the countries with larger land area, population size and level of economic development tend to decentralize more government expenditure, whereas the higher urbanization supports more centralization. The heterogeneity of preferences measured by ethnical, language and religion fractionalization proved to be the significant factor of expenditure decentralization. From the institutional determinants, the voice and accountability, the government efficiency and the political stability were the most significant determinants of expenditure decentralization. Finally, the federated countries and countries with socialist or German legal origin are more decentralized, while the English legal origin countries are more centralized.