The Effect of Fiscal Decentralisation on the Expenditure of Urban Local Bodies: An Econometric Evidence from Mangalore City Corporation-India

Abstract

Fiscal decentralisation refers to the enactment of laws to empower local bodies to collect their
own taxes, embark on expenditure and investment activities among others independent of the central or state
government. Thus given the enormous challenges such as inadequate infrastructure, unemployment, poverty
among others that confront central governments as well local bodies, fiscal decentralisation is advocated to
empower local bodies financially to be able to take initiatives to solve most of the challenges at the local
level and therefore taking some burden from the central government. Given this backdrop, several countries
including India have adopted fiscal decentralisation at varying degrees. This study therefore used time
series data from 1987-2015 as well as the OLS econometric regression technique while testing for
heteroskedasticity using the Breusch-Pagan / Cook-Weisberg test to investigate the effect of fiscal
decentralisation on the expenditure or payments of Mangalore City Corporation in India. The study found
fiscal decentralisation to have statistically positive significant effect on payments, capital payments and total
expenditure of Mangalore City Corporation. Further, gross domestic income was revealed to have positive
significant effects on payments and capital payments of Mangalore City Corporation. Thus, factors that
enhance fiscal decentralisation and economic growth need to be instituted by policy makers in India in
order to boost expenditure towards curbing the various challenges that confront Local Urban Bodies
(ULBs).