Silvia Golem – Faculty of Economics, Business and Tourism Split, University of Split, Cvite Fiskovica 5, 21000 Split, Croatia
Ivana Žegarac –
Faculty of Economics, Business and Tourism Split, University of Split, Cvite Fiskovica 5, 21000 Split, Croatia



Full paper

Download file

6th International Scientific Conference – EMAN 2022 – Economics and Management: How to Cope With Disrupted Times, Ljubljana, Slovenia, March 24, 2022, CONFERENCE PROCEEDINGS, published by: Association of Economists and Managers of the Balkans, Belgrade, Serbia; ISBN 978-86-80194-57-8, ISSN 2683-4510



The main aim of this paper is to test the Leviathan hypothesis; namely, that fiscal decentralization reduces the size of public sector, using panel data analysis, and employing data for twenty European countries over the period 1999-2016. The Leviathan hypothesis suggests a negative rela­tionship between the public sector size and fiscal decentralization. In the em­pirical literature, however, there is no clear consensus on whether fiscal de­centralization actually reduces the public sector size. Some authors suggest that the effects of fiscal decentralization are quite the opposite – given that the sub-national authorities are better informed about their citizens’ prefer­ences, the decentralized provision of public goods might be more efficient and better tailored to the citizens’ preferences, which can actually increase the local demand for public services, and hence, the size of the public sector. This research finds no evidence that fiscal decentralization has any effect on the size of the government.


Leviathan hypothesis; Sub-national governments; European countries


Brennan, G. & Buchanan, J. (1980). The Power to Tax: Analytical Foundations of a Fiscal Con­stitution. Cambridge: Cambridge University Press.

Cassette, A. & Paty, S. (2009). Fiscal decentralization and the size of government: A European country empirical analysis. Public Choice, 143 (2010), 173- 189.

Jin, J. & Zou, H., (2001). How does fiscal decentralization affect aggregate, national, and sub­national government size? Journal of Urban Economics, 52, 270-293.

Kim, A. (2008). Decentralization and the Provision of Public Services: Framework and Imple­mentation. Policy Research Working Paper 4503, The World Bank, available at: http://doc­

Letelier, S. L., 2005. Explaining Fiscal Decentralization. Public Finance Review, 33 (2), 155-183.

Litvack, J., Ahmad, J. & Bird, R., (1998). Rethinking Decentralization in Developing Coun­tries. Washington, DC: The International Bank for Reconstruction and Development/ The World Bank, available at:­thinking%20Decentralization.pdf

Makreshanska, S. & Petrevski, G. (2016). Fiscal decentralization and government size across Europe. Munich Personal RePEc Archive, MPRA Paper No. 82472, Saints Cyril and Methodius University in Skopje, Faculty of Economics, available at:

Prohl, S. & Schneider, F. (2009). Does Decentralization Reduce Government Size? A Quanti­tative Study of the Decentralization Hypothesis. Public Finance Review, 37(6), 639- 664.

Stegarescu, D. (2005). Public Sector Decentralisation: Measurement Concepts and Recent In­ternational Trends. Fiscal Studies, 26 (3), pp. 301-333.


Association of Economists and Managers of the Balkans – UdEkoM Balkan
179 Ustanicka St, 11000 Belgrade, Republic of Serbia

EMAN conference publications are licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.