The Korea Local Administration Review

This study analyzes whether the effects of fiscal decentralization are changed bylocal governmentsʼ fiscal autonomy through applying Voʼs fiscal decentralizationindex(FDI). It also provide more apparent conclusion for the relationship betweenfiscal decentralization and economic growth.The results demonstrate that fiscal decentralization affects economic growthnegatively by the model in which uses traditional indicator, although this negativeeffect is not statistically significant. On the contrary, the result that uses the VoʼsFDI index reveals that fiscal decentralization has positive effect to economicgrowth.As the result from this study explains, the effect of fiscal decentralization toeconomic growth depends on the appropriateness of institution that is designed toperform fiscal decentralization. In other words, when the fiscal decentralizationprovides practical autonomy of tax revenue and expenditure to local government,it will increase the efficiency of resource allocation through competition amonglocal governments that will eventually contributes economic growth of localgovernment.
□ Keywords: fiscal decentralization, economic growth, fiscal autonomy, fiscaldecentralization index