Is Decentralization Really Welfare Enhancing? Empirical Evidence from Survey Data (1994‐2011)

Summary Decentralization is believed to constitute the optimal institutional arrangement for the provision of public expenditure. In contrast to centralization, it is thought to offer a better match between the provision of public services and individual preferences. We test this fundamental hypothesis propounded by the fiscal federalism literature by analyzing the process of decentralization undergone by Spain since the beginning of the 1980s. We exploit survey data in which respondents (coded according to their region of residence) are asked about their level of satisfaction with the provision of public goods. A higher degree of satisfaction is expressed when responsibility for education and health expenditure is assigned to the intermediate tier of government rather than to central government. This level of satisfaction, however, is not recorded in the case of Spain's largest regions. Likewise, the simultaneous presence of tax revenue decentralization does not guarantee further welfare gains. In the case of the administration of justice—where the nature of the responsibility assigned to some regional governments is of a merely administrative nature—decentralization does not appear to have any impact on the level of satisfaction expressed.