Analyzing the effects of fiscal decentralization on social welfare in Iran provinces; Generalized Method of Moments approach

Document Type : Original Article

Authors

1 Assistant Professor in Economics, Razi University, Kermanshah

2 M.A. of economics, Razi University, Kermanshah

3 M.A. of Energy Economics, Razi University, Kermanshah

Abstract

Ensuring the social welfare of societies is closely related to the type and manner in which governments use fiscal policies. In this regard, the main purpose of this study is to investigate the effects of fiscaldecentralization (income and expenditure) on social welfare. For this purpose, based on 30 provinces of Iran data’s during the 2005-2017 period, first the variables affecting welfare have been identified and the social welfare index for the provinces has been calculated, then the effects of decentralization have been investigated using the generalized method of movements for Income and expenses on the welfare index. The results of the model estimations, indicate a direct relationship between income and expenditure decentralization with social welfare, but with further increase in decentralization, this relationship has become negative and this indicates the instability of the fiscal situation in improving social welfare and has led to further increase in decentralization, this relationship becomes negative. Therefore, increasing decentralization and delegating more development projects to the provinces does not increase welfare, but also, first the necessary infrastructure for delegating affairs to the provinces, the power of self-government of the provinces should be evaluated, then with independence in Finance, we should expect the realization and improvement of social welfare in the provinces.

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