Redistributive efficiency of fiscal policy: The role of decentralization and good governance

In this paper, we empirically analyse the redistributive efficiency of fiscal policy considering its degree of decentralization for a sample of thirty-five countries over the 2000–2016 period. To do this, we follow a two-stage process where we first employ a bootstrap Data Envelopment Analysis (DEA) method to estimate the redistributive efficiency of cash transfers and direct taxes at the central and subnational levels. We obtain evidence that redistributive efficiency has diminished after the Great Recession (2007–2008), and is lower in the Southern European countries, and higher in almost the rest of Europe and the Latin American countries. Second, a bootstrap truncated regression analysis is used to identify the contextual factors that might explain redistributive efficiency variation across countries and time, supporting the argument that good governance is a requirement for decentralization to be efficient in promoting policy outcomes.