engleski

HOW LEVIATHAN REACTS ON RECESSION?

This article revisits the „Leviathan“ hypothesis and examines the relationshio between the different aspect of fiscal decentralization and the size of government expenditure, measured as a percentage of GDP. According to the Leviathan hypothesis (Brenan and Buchanan, 1980) central governments operate like monopolists or mythological creatures - Leviathans trying to maximize their revenues and expenditures. Fiscal decentralization could be a mechanism for the introduction of fiscal competition among local governments and, hence, for constraining the growth of total government spending. Using the generalized method of moments, on a sample covering 23 European OECD countries and Croatia over the 2005 - 2012 period, this paper reveals that fiscal decentralization failed to restrain Leviathan in the times of recent economic crisis.

Fiscal decentralization ; Government size ; Leviathan hypothesis ; Generalized method of moments (GMM)

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