Fiscal decentralization shrinks government size, democracy softens the blow.
This paper looks at how democracy levels in a country affect the relationship between giving more financial power to local governments and the size of the central government. The researchers studied data from 76 countries over 41 years and found that when local governments have more financial power, the central government tends to be smaller. They also discovered that in more democratic countries, this effect is less strong. This means that democracy can change how fiscal decentralization impacts government size.