Searching for a restraint on the European Leviathan

Nikolay Andonov PATONOV


The purpose of this paper is to analyze the effect of fiscal decentralization on the government size in the European Union member states. The Two-Stage Least squares procedure is applied on the panel data for the period 2000-2010. The regression model which is constructed includes the total amount of government tax revenue as a dependent variable. The revenue and expenditure variable for fiscal decentralization are put as main explanatory variables. The empirical results support the theoretical assumptions for the restrictive influence of the revenue decentralization as well as the increasing effect of the expenditure decentralization on the government intrusion into economy measured via the amount of tax revenue.

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local share of total government revenue, the ratio of local expenditure to GDP, tax revenues, government intrusion into economy, revenue-maximizing behavior

JEL Codes

H77; R55; H71; H72


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