DP8575 Income inequality, decentralisation and regional development in Western Europe

Author(s): Andy J Pike, Andrés Rodríguez-Pose, John Tomaney, Gianpiero Torrisi, Vassilis Tselios
Publication Date: September 2011
Keyword(s): Europe, fiscal and political decentralization, income inequality, income per capita, interaction, regions
JEL(s): D31, O15, O18, R13, R58
Programme Areas: International Trade and Regional Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=8575

This paper deals with the relationship between decentralisation, regional economic development, and income inequality within regions. Using multiplicative interaction models and regionally aggregated microeconomic data for more than 100,000 individuals in the European Union (EU), it addresses two main questions. First, whether fiscal and political decentralisation in Western Europe has an effect on within regional interpersonal inequality. Second, whether this potential relationship is mediated by the level of economic development of the region. The results of the analysis show that greater fiscal decentralisation is associated with lower interpersonal income inequality, but as regional income rises, further decentralisation is connected to a lower decrease in inequality. This finding is robust to the measurement and definition of income inequality, as well as to the weighting of the spatial units by their population size.