Fiscal Decentralisation and efficiency of government. A brief literature review

Fiscal decentralisation can be defined as a two-dimensional policy institution that involves either decentralisation of a tax instrument, when local governments have the power to raise taxes, or decentralisation of expenditures when local governments bear the responsibility for implementing expenditure functions. The way in which fiscal decentralisation affects the "quality" of government activity can be seen from different points of view and operates through many mechanisms. On the other hand the huge amount of theoretical and empirical literature that studies the relation between decentralisation and government efficiency can be divided into two large areas: