Fiscal decentralisation and the distributive incidence of the great recession

We argue that fiscal decentralisation is one important explanation for variation in distributive outcomes following the Great Recession. Using a difference in differences approach, we examine how fiscal decentralisation mediated the link between spatial distribution, redistributive effort, and interpersonal inequality in 21 OECD cases in the years following the Great Recession. We find that fiscally decentralised nations saw increased interpersonal inequality and lower redistribution, but lower inter-regional inequality. We attribute these results to the weaker redistributive mechanisms in fiscally decentralized nations, which increased interpersonal inequality while preserving market-driven productivity declines in high productivity areas that temporary increased regional convergence.