Regional inequalities, fiscal decentralization and government….pdfVIP

GEN - Governance and Economics research Network GEN Working Paper A 2015 – 1 webs.uvigo.es/infogen/WP February 2015 REGIONAL INEQUALITIES, FISCAL DECENTRALIZATION AND GOVERNMENT QUALITY: EMPIRICAL EVIDENCE FROM SIMULTANEOUS EQUATIONS Andreas P. Kyriacou* Leonel Muinelo-Gallo** Oriol Roca-Sagalés*** * Universitat de Girona and GEN ** Universidad de la República ***Universitat Autònoma de Barcelona and GEN Regional Inequalities, Fiscal Decentralization and Government Quality: Empirical Evidence from Simultaneous Equations 1 2 3 Andreas P. Kyriacou , Leonel Muinelo-Gallo , Oriol Roca-Sagalés 1Departament d’Economia, Universitat de Girona, Campus de Montilivi, 17071, Girona, Spain (e-mail: andreas.kyriacou@udg.edu) 2Instituto de Economía de la Universidad de la República, Joaquín Requena 1375, Código Postal 11200, Montevideo, Uruguay (email: lmuinelo@iecon.ccee.edu.uy) 3Departament d’Economia Aplicada, Universitat Autònoma de Barcelona, Edifici B, Bellaterra 08193, Barcelona, Spain (e-mail: oriol.roca@uab.cat) Abstract There are theoretical arguments supporting the view that regional income inequalities, the degree of fiscal decentralization and the quality of government are simultaneously determined. To the extent that previous work has considered feedback effects between them, it has done so through instrumental variable estimates based on instruments whose validity can be questioned. Moreover, most existing work has estimated the relationship between any two of these variables in the absence of the third. Our empirical evidence, drawn f