Fiscal decentralization and poverty in South Africa : evidence from panel data analysis

Abstract

This paper examines the dynamic relationship between fiscal decentralization and poverty in South Africa within a panel data framework. The data used covers the period from 2005 to 2011 for the eight metropolitan municipalities making a total of 56 observations. We use real household consumption expenditure per capita as a proxy for poverty and the ratio of metropolitan expenditure to national government expenditure as fiscal decentralization. The results from a panel VAR estimated with GMM, show a negative short run effect of fiscal decentralization on real household consumption per capita in South Africa. These results have important policy implications.