Fiscal Decentralization, Good Governance and Regional Development—Empirical Evidence in the European Context

Abstract

The nexus between local governments’ budgets and regional growth is a complex one, with organic interconnections, ideally offering better outcomes, both in the matter of (local) fiscal consolidation and the welfare of societies. In this study, we analyze the impact of local fiscal consolidation efforts (as reflected by the budget indicators regarding local revenues and expenditures for the countries involved) on regional development, using a sample of 21 EU Member States and a timescale between 2001 and 2019, based on specific data reported by Eurostat and the World Bank. By employing the Generalized Linear Model (GLM), the results show that some of the considered indicators have a statistically significant positive influence on the GDP per capita at the regional level, thus highlighting the important role of sound local public finances in achieving the objectives of regional development. Based on our findings, we recommended some improvements regarding the practice of local fiscal policy in order to enhance the role of fiscal consolidation in sustaining regional development within the subject countries.