Fiscal Decentralization and Local Borrowing in Turkish Provinces

Fiscal Decentralization and Local Borrowing in Turkish Provinces

Mehmet Serkan Tosun (University of Nevada, USA), Dilek Uz (University of California, USA) and Serdar Yılmaz (World Bank, USA)
DOI: 10.4018/978-1-5225-0053-7.ch022


There have been important developments in the decentralization of the government structure in Turkey since the early 1980s. This paper examines the link between fiscal decentralization and local borrowing within Turkish provinces. It first discusses local government reforms throughout the history of the Turkish Republic with the focus on recent reform efforts and current local government structure. It then provides an empirical analysis of the effects of decentralization in Turkish provinces using cross-sectional and panel data approaches, and spatial econometrics. The dataset consists of 67 provinces from 1980 to 2000, and separately cross-sectional data on all 81 provinces for the year 2000. Using decentralization measures such as number of local governments per capita and ratio of own-source municipal revenue to total provincial tax revenue, and specific characteristics of the municipalities the analysis examines whether variations in local decentralization across these provinces and across time have had a significant impact municipal borrowing in those provinces.
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Fiscal Decentralization And Local Borrowing

The main theoretical arguments underlying the interest in decentralization are increasing efficiency, transparency and accountability in the government. While Stigler (1957) argued for bringing government closer to people, Musgrave (1959) argued that there should be difference between subnational governments to match diverse preferences of their residents. The decentralization theorem by Oates (1972) indicated that “each public service should be provided by the jurisdiction having control over the minimum geographic area that would internalize benefits and costs of such provision.”

There has been worldwide interest in decentralization in recent decades. There have been attempts by both developed and developing countries to challenge central governments' policymaking power (World Bank, 1999). While the decentralization argument was made in response to various central government failures in developing countries, subnational governments also failed to provide adequate public services in most cases.1

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