Fiscal Decentralization, Income Distribution and Economic Growth: A Case Study for Iran

Theory of decentralization in order to increase productivity and efficiency of governments and regional balance has been considered. In this study by using augmented neoclassic model, the direct and indirect effects of fiscal decentralization on economic growth is evaluated over the period of 2001-2008 across the 30 provinces of Iran. Researchers find that there are linear positive relationship between expenditure decentralization and economic growth, however revenue decentralization appears to have nonlinear positive effect on economic growth. The indirect effect of fiscal decentralization through its positive influence on income distribution also has been examined.