Template-Type: ReDIF-Paper 1.0
Handle: RePEc:ida:wpaper:WP2611
Number: WP2611
Creation-Date: 2026-05-05
Length: 51 pages
File-URL: https://repec.ideagov.eu/RePEc/ida/wpaper/WP2611.pdf
File-Format: Application/pdf
File-Function: First version, 2026

Title: Revenue Decentralization and Vertical Fiscal Imbalance: A Survey

Abstract: This paper offers a comprehensive and updated survey of subnational revenue autonomy and vertical fiscal imbalance in fiscally decentralized systems. We argue that progress in understanding the effects of revenue decentralization has been fundamentally shaped by how it is measured, and that the widespread reliance on transfer-dependence proxies has generated persistent inconsistencies in the empirical literature. Moreover, distinguishing between optimal, actual, and excess Vertical Fiscal Imbalance is essential for policy design. We focus on the effects of revenue autonomy in enhancing spending efficiency, strengthening accountability, and promoting fiscal discipline, while also shaping outcomes in macroeconomic stability, economic growth, and regional redistribution. While the intricate nature of the subject does not allow for an all-inclusive survey, we aim to provide a thorough examination of the most salient effects of subnational revenue autonomy and the pervasiveness of vertical fiscal imbalances. We conclude by highlighting priorities for future research.

Classification-JEL: H71, H72, H73, H77

Keywords: Revenue Assignments; Vertical Fiscal Imbalances; Tax Autonomy; Fiscal Decentralization; Subnational Governments

Author-Name: Manuel E. Lago
Author-Name-First: Manuel E.
Author-Name-Last: Lago

Author-Name: Santiago Lago-Peñas
Author-Name-First: Santiago
Author-Name-Last: Lago-Peñas

Author-Name: Jorge Martinez-Vazquez
Author-Name-First: Jorge
Author-Name-Last: Martinez-Vazquez

Author-Name: Cristian Sepulveda
Author-Name-First: Cristian
Author-Name-Last: Sepulveda