Fiscal decentralization hinders local governments from providing non-economic public goods.
The article uses new institutional economics to study how local governments behave when given more control over their finances. It shows that under fiscal decentralization, local governments are less likely to provide non-economic public goods. The researchers found that when local governments compete for funding, it leads to a decrease in non-economic public goods provision. On the other hand, when local governments work together, it has a positive impact on providing non-economic public goods.