Fiscal autonomy and the path to sustainable local economic development : a multilevel municipal analysis in South Africa

Abstract

Despite fiscal reforms aimed at achieving Sustainable Development Goal Target 17.1—strengthening domestic resource mobilization for development—the impact of fiscal autonomy on local economic development (LED) in South Africa remains underexplored. Therefore, this study examines the impact of fiscal autonomy across 248 municipalities from 2009 to 2023, employing a range of advanced econometric methods. The results highlight a complex relationship: System Generalized Method of Moments analysis shows fiscal autonomy negatively affects LED in metropolitan municipalities (Category A) but has positive effects in the full sample, as well as in district (Category C) and local municipalities (Category B). The methods of moments quantile bootstrap regression shows that fiscal autonomy promotes LED across all quantiles for the full sample and in Category B. However, Category A exhibits a negative impact, whereas Category B shows an insignificant negative effect across all quantiles. These findings emphasize the need for differentiated policies. Metropolitan municipalities require targeted governance and fiscal reforms to mitigate negative outcomes while expanding fiscal autonomy for local and district municipalities could significantly enhance LED. This research offers practical insights for tailored fiscal strategies, promoting sustainable economic growth across South Africa's varied municipal landscapes.