Fiscal Decentralization, Institutional Quality, and Government Size: An Asymmetry Analysis for Asian Economies

Abstract The aim of this study is to examine the asymmetric effects of fiscal decentralization and institutional quality on government size by employing asymmetric autoregressive-distributed lag (ARDL) methodology by using the time series data of Asain economies from 1984 to 2017. The results show that positive shocks in expenditures decentralization (ED) enhance government size in Japan, Kazakhstan, Thailand, Turkey, and reduces it in Korea, Rep. in long run. While negative shock in ED reduces government size in Pakistan, Thailand, Turkey and increases it in Kazakhstan and Mongolia in long run. Whereas asymmetric results in the long show that a positive shock in revenue decentralization (RD) increase government size in Pakistan, Japan, Kazakhstan, Thailand, and Turkey, and a negative shock in RD is also decreased government size in Pakistan, Mongolia, Thailand, and Turkey. The results also disclosed that positive shock in institutional quality (IQ) increases government size in Azerbaijan, Japan, Thailand and negative shock in IQ also increases government size in Pakistan, Azerbaijan, Japan, Kazakhstan, Thailand, in the long run. While short-run asymmetric results of fiscal decentralization and institutional quality on government size have robust in the public sector. Based on the empirical outcomes, some economic policy implications are proposed for the provincial and federal governments of Asain economies.