Fiscal decentralization, local government performance, and inclusive growth

Abstract

This research studies the impacts of fiscal decentralization on local government performance and inclusive growth. The unit of analysis was 76 provinces in Thailand (all provinces with the exception of Bueng Kan), and the research period was 2010 to 2017. The analysis of the economic growth model indicates that fiscal decentralization, excluding grants had a negative relationship with economic growth with no statistical significance, while fiscal decentralization, including grants had a positive relationship with economic growth with no statistical significance. However, local government performance had a positive statistically significant relationship with economic growth. The research results are used to develop policy recommendations on balancing revenue and expenditure decentralization of local government organizations and to increase the efficiency of human resources and utilities in order to achieve economic growth.

In addition, the research finds that grants allocated to local government organizations help to increase income distribution equality and reduce the number of poor. Moreover, increased per capita income is a key factor in reducing the number of poor people but this has no effect on income distribution equality. The policy recommendations on fiscal decentralization are made based on the research results, including those on improving local tax collection to be more fair and equitable and determine the criteria for the allocation of grants to local government organizations by focusing on poverty alleviation and income distribution equality.

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