Fiscal decentralization and sustainable development in Africa: an empirical investigation from inequality

doi:10.21203/rs.3.rs-4923169/v1

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Fiscal decentralization and sustainable development in Africa: an empirical investigation from inequality

https://doi.org/10.21203/rs.3.rs-4923169/v1

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There is no consensus among public economists as to which of the central and local governments should perform the redistributive function. While most authors recommend the centralisation of this function (Tiebout, 1956; Musgrave, 1959; Oates, 1972, Tanzi, 1995), some (Buchanan, 1950; Pauly, 1969; Perotti, 1992) have shown that its decentralisation would be equally if not more effective. This paper analyses the effect of fiscal decentralisation on inequality in Africa over the period 2005–2018. Using a sample of 17 African countries, we estimate a panel data model using the Ordinary Least Squares (OLS), Fixed Effects (FE) and Generalized Moment Method (GMM) in System. Our results show that fiscal decentralization reduces environmental and housing inequalities in Africa. These results remain robust to the use of MMG. We suggest the valorisation of local policies in governance policies in Africa.

Jel code: H23, H71.

fiscal decentralisation

environmental inequalities

habitat inequalities

Emerging and developing countries are characterised by the existence of several forms of inequality. First, economic inequalities marked by the difference in income between individuals and therefore the GINI coefficient remains the most widely used indicator. Secondly, housing inequalities measured by the percentage of the urban population living in unhealthy peri-urban areas, and finally, environmental inequalities resulting from the unequal sharing of natural resources, the absence of green space and urban pollution (Nkoa and Jacques, 2019). Several public development policies, including decentralisation, are being implemented today to reduce poverty and inequality.

According to Caldeira and Rota-Graziosi (2014), decentralisation corresponds to the transfer of competences from central bodies to decentralised territorial authorities (first and foremost the Communes). Thus, the analysis of the effects of this policy on development can be assessed in the light of two principles from the literature on fiscal federalism. Firstly, it can be assessed in relation to the principle of proximity according to which decentralisation is associated with a better supply of public goods and services. This argument is based on the informational advantage that local elected officials would have compared to the central government because of their proximity to the population. Several empirical studies have demonstrated this informational advantage. Thus, the decentralisation of fiscal expenditure improves governance at the local level, especially when local resources are low (Berenstein and De Melo, 2001). In its fiscal component in particular, it allows a reduction in the level of corruption (Fisman and Gatti, 2002). These inequalities in the face of environmental degradation constitute one of the dimensions of the notion of environmental justice that emerged in the United States in the 1980s.

To assert that the reduction of inequalities is a major issue in modern society inevitably involves contradictory and polemical debates that seek to define the subject as a postulate. Faced with the risk of increasing inequalities between jurisdictions as a result of decentralisation, the literature agrees on the need to combine decentralisation with a stable, equitable and efficient system of intergovernmental transfers (Buchanan, 1950, Oates, 1972 and Gramlich, 1977). However, such transfers from central government would reduce the incentives of decentralised territorial communities (DTCs) to mobilise local taxation (Smart, 2007, Egger et al, 2010). Based on a study in Benin, Caldeira and Rota-Graziosi (2014) reach an opposite conclusion showing that unconditional transfers of power can stimulate the mobilisation of local own resources.

The concept of environmental inequality quickly gave rise to the hypothesis of a link between social and environmental inequality: disadvantaged populations, which are more vulnerable, are more exposed to environmental risk factors and therefore more likely to be subject to health inequalities. In 2012, the World Health Organisation (WHO) noted that reducing health inequalities in a given area requires the identification and characterisation of inequalities in exposure, associated with social factors, in order to identify and prioritise prevention actions. However, the last two years of the 20th century were characterised by a real collapse of this dynamic of dismantling inequalities. This has cast doubt on the real legitimacy of previous discourses on environmental inequalities, based on projects to reduce them. Following this logic, Jellema and Tassot (2018) conclude that inequality is even greater when the tax policy component is not taken into account. Based on these empirical results, this study hypothesises that fiscal decentralisation contributes significantly to the reduction of inequalities, particularly environmental and housing inequalities in Africa. The inclusion of the dimension of inequalities, especially environmental inequalities, in the process of fiscal decentralisation has its real source in the context of human development. A combination of persistent inequality and low capacity hinders the development of the country. This study therefore aims to show that tackling environmental inequalities requires first and foremost a more innovative approach to local fiscal policy. This leads us to the following central question: what are the effects of fiscal decentralisation policies on environmental inequalities in Africa? To answer this question, we first identify the channels through which fiscal decentralisation affects environmental inequalities.

As environmental inequalities are defined as situations of potential overexposure of populations to one or more environmental risk or nuisance factors, this study aims to empirically examine the effect of decentralised fiscal policies on these environmental inequalities in African countries in order to make economic policy suggestions. In addition, the main contribution of this work will be to present the issues surrounding local fiscal policies and environmental quality in African countries. Indeed, it will provide guidance in the use of the tax system to address environmental issues and the incentivisation of behaviour to support sustainable policies and development. Furthermore, if inequality is an important concern for African countries seeking to achieve sustainable development, the results of our analysis will provide policy recommendations to African governments on how to direct public policy to reduce environmental inequality.

The rest of the paper is divided into three complementary sections. Section 2 is devoted to a review of the literature on environmental impact studies, section 3 presents the methodological approaches used and section 4 presents the results and their discussion. This last section is followed by a conclusion.

This section discusses the theoretical underpinnings of the relationship between fiscal decentralisation and environmental inequalities on the one hand, and examines the empirical evidence of this relationship on the other.

2.1 Theoretical foundations of the relationship between fiscal decentralisation and environmental inequalities

The effect of fiscal decentralisation on environmental inequalities can be assessed from the perspective of environmental federalism on the one hand, and from the perspective of environmental justice (EJ) on the other.

In the tradition of fiscal federalism, the question of who should perform the redistributive function between central and local government is an unsettled debate. While much of this literature recommends centralization of this function (Oates, 1972; Wildasin, 1991, Tanzi, 1995), another part believes that decentralization might be more optimal than centralization (Pauly, 1973; Perotti, 1992). From an environmental federalism/decentralisation perspective, the problem of authority in environmental regulation arises (Millimet, 2014). The problem is: who of the central/federal government and the local/regional government should regulate environmental activity? This question is all the more interesting as it extends the debate on fiscal federalism. After all, autonomy in environmental regulation requires the means for this policy. Entrusting this function/charge to local/regional government should therefore be accompanied by some financial power. Under these circumstances, it becomes interesting to ask how this financial power (fiscal decentralisation) can contribute to the management of environmental issues and in particular the related inequalities. Therefore, the effect of fiscal decentralisation on environmental inequalities can be analysed according to the pure public goods approach, the local public goods approach and the spillover effect approach.

With regard to the first point, if we consider the environment as a pure public good in the sense of Samuelson (1945), only the central/federal government, which has greater financial, human and material resources than the local government, is able to provide them with the greatest efficiency. But if the environment is considered as a local public good and therefore the demand is a function of the particularities of each local government, then it would obey the optimal decentralisation theorem of Oates (1972). In other words, a local and therefore decentralised provision would be more appropriate because it would be more efficient. In both cases, there may be a problem of spillover effects, as is generally the case with environmental resources. However, in the case where the central government provides the good, the external effects are more easily internalised than in the case where the local government does so. The literature on the subject seems to have settled the question, but in a multi-level public finance system, subsidies, tax transfers or horizontal cooperation between sovereign jurisdictions are considerable tools for internalising externalities (Pigou, 1932; Quigley, 1997; Zimmermann and Henke, 2001). On the other hand, the externalities arising from the provision of public goods vary enormously from the global scale, in the case of global warming, to the local scale, in the case of most municipal services such as sanitation. In order to internalise these multifaceted externalities, multi-level governance is needed as suggested by Hooghe and Marks (2001).

From an environmental justice perspective, much of the literature on environmental inequalities focuses on the existence of unequal outcomes but does not provide an analysis of the mechanisms behind these outcomes (As Szasz and Meuser, 1997; 1998; Weinberg, 1998). Yet, one of the most important questions to be answered is how environmental inequalities are produced? To this question, many researchers answer that environmental inequalities arise when poor people or people of colour are left behind or exposed to hazards because they have less power than states and corporations (Pellow, 2000). This response is consistent with the realities of the United States of America, where middle-class housing areas are distinct from those of the poor. However, if we look at the situation in developing countries, particularly in sub-Saharan Africa, environmental inequalities may be due mainly to lax regulation by public authorities, but also to the absence of territorial or urban planning policies that create urban disorder and contribute to environmental risks. In any case, these risks can be reduced by local planning that takes into account the geographical realities of each locality.

Environmental justice is increasingly seen as a human rights issue (see, for example, Hartley, 1995; Johnson, 1996; Goldman, 1996; Heiman, 1996; Merrills, 1996; Waks, 1996; Taylor, 2000; Agyeman et al.) From this perspective, all people in every region or locality of the world have the right to live in a healthy environment. And as with justice in general, it could be delivered according to at least three basic principles: equality, equity and compensation with reference to Albin's (1995) compensatory justice. Based on the natural law that all individuals are equal and should be treated as such, the principle of equality implies that all regions and/or municipalities should be entitled to the same or comparable environmental burdens or costs as its rewards or benefits (Ikporukpo, 2004). But any equality must be based on legitimate and acceptable reasons. This means that parties can only be treated equally if they are truly equal in terms of what is to be distributed. From this perspective, environmental justice can be said to have been achieved if there is, for example, a proportional reduction in the level of pollution in all localities, even if the pollution load continues to vary from one locality to another (Ikporukpo, 2004).

The principle of equity, which is an improvement on the principle of equality, emphasises the proportionality of burdens or rewards to the relevant inputs. In other words, environmental justice is achieved if, and only if, the ratio of inputs to burdens or rewards of one area or part is the same as that of another part or area. The implication is that areas or parties that pollute should bear a proportionate burden. Similarly, areas or municipalities that suffer from the polluting effects of an activity should, if there are benefits from the activity, be rewarded in proportion to the degree of pollution. A limitation of this principle is that the proportionality standard is sometimes ambiguous and difficult to operationalise precisely.

Compensatory justice, on the other hand, "requires that resources be allocated to compensate a party for costs unduly incurred in the past or present" (Albin, 1995, p. 132). This implies that there is, or has been, an unjust environmental burden that must be addressed. Compensatory justice is similar to Rawls' (1971) principle of reparation. "It is the principle that undeserved inequalities call for redress; and since inequalities of birth and natural endowment are undeserved, these inequalities must be compensated in some way" (Rawls, 1971, p. 100). Determining the nature and degree of unjust harm inflicted and the nature and amount of compensation could be problematic.

In general practice, some EJ activists even question aspects of the compensatory justice principle. In particular, they argue that it is unfair to locate toxic waste facilities in minority and low-income neighbourhoods in return for a compensatory payment; an arrangement that Bullard (1990) has termed 'environmental blackmail'. In any case, where environmentally damaging resources are naturally present in a given location, their exploitation for the development of a given country or region may be inevitable, especially in less developed countries (Ikporukpo, 2004). The fundamental question is how best to exploit the resources to ensure environmental justice in the affected area and in the country or region in general. The argument, especially in federations or decentralised countries, is that environmental justice can be achieved through financial self-sufficiency of resource-producing regions (Ikporukpo, 1996). In other words, a certain financial ease (i.e. autonomy) of regions and/or municipalities is needed to ensure this justice. As McLure and Mieszkowski (1983) have argued, autarky in the collection and use of money from resources is necessary because funds are also needed to recover and treat waste.

In sum, the basic principles of fiscal federalism justify the centralisation of the redistributive function of the public sector, but they indicate that decentralisation of the provision of other services, such as environmental regulation, in accordance with geographical patterns has benefits and costs. From the perspective of environmental federalism, environmental regulation can be provided by both central and local authorities. Rodden (2010) argues that people in poorer localities are entitled to the same public services at the same price as people in richer localities. And as Ebekozien et al. (2019) point out, this happened during the 20th century when some federations developed a political discourse.

2.2 Some empirical evidence

While the literature on the effect of fiscal decentralisation on income inequalities is extensive, the literature on the effect of fiscal decentralisation on environmental inequalities is not. The only work to our knowledge is that of Ikporukpo (2004).

Through the descriptive statistics of the Federal State of Nigeria, Ikporukpo (2004) describes how the resources derived from the exploitation of the environment, especially oil resources, are shared fairly between the federal, state and local governments, and how environmental problems are equitably managed. It appears from his description of the facts that the exploitation of these resources and the management of the inherent risks follow the Rawlsian process. With regard to allocative justice, he indicates that the most important criteria used in the distribution of revenues between states and local government areas are population size, equity and land area (geographical size). The implication is that the larger the population and the larger the area of a state or local government area, the larger the revenue allocation.

The same trend continues in the allocation of the ecological fund, which represents 2% of the federation's account. This fund is intended to solve ecological problems in all regions of the country. The allocation is as follows: 51%, 48% and 1% respectively allocated to and used by the states, the federal government and the Federal Capital Territory of Abuja. The states' share is allocated according to the same criteria used in the general allocation. The same statistics further indicate that the four major oil producing states of Delta, Rivers, Bayelsa and Akwa Ibom account for 2.74%, 2.81%, 2.08% and 2.70% of the allocation respectively. This is despite the fact that these states, apart from oil-related environmental problems, also face several other problems such as erosion. While flooding and river and marine erosion are largely confined to the Niger Delta States, the allocation to states such as Kano (4.18%) and Katsina (3.36%) is difficult to justify from the perspective of environmental justice.

As can be seen, there is no study as such assessing the effect of fiscal decentralisation on environmental and housing inequalities. At best, existing studies examine the impact of environmental decentralisation on socio-economic variables (Millimet, 2003, 2014) and even of fiscal decentralisation on pollution (He, 2015; Nworgu, 2022). By analysing the effect of fiscal decentralisation on environmental and housing inequalities, this study makes a significant contribution to the literature.

After the presentation of the model and the data sources, the empirical part also justifies the estimation technique.

3.1 The empirical model

Following the specification of Anyanwu et al. (2016) which incorporates more explanatory variables, the model to be estimated takes the following form (Eq. 1):

$$\:{\varvec{I}\varvec{n}\varvec{e}\varvec{g}\varvec{a}\varvec{l}\varvec{i}\varvec{t}\varvec{e}\varvec{s}}_{\varvec{i},\varvec{t}}=\:\varvec{\alpha\:}+\:{\varvec{\beta\:}}_{1}{\varvec{F}\varvec{D}}_{\varvec{i},\varvec{t}}+\:{\varvec{\beta\:}}_{2}{\varvec{X}}_{\varvec{i},\varvec{t}}+\:{\varvec{\mu\:}}_{\varvec{i}}+\:{\varvec{V}}_{\varvec{t}}+\:{\varvec{\epsilon\:}}_{\varvec{i},\varvec{t}}\:\:\:\:\:\:\:\:\:\:\:\:\:\:\:\:\:\:\:\:\:\:\:\:\:\:\:\:\:\:\:\:\:\:\:\:\:\:\:\:\:\:\:\:\:\left(1\right)$$

where Inequality_it is the inequality index of country i at date t. Contrary to previous studies, they are captured by two measures: (i) environmental inequalities which are of particular interest in development studies because their non-rationalised management causes other inequalities; (ii) housing inequalities which capture the gap between people living in unhealthy areas and those living in healthy areas; FD_it is the measure of fiscal decentralisation captured here by two indicators namely: (i) the revenue indicator which is the share of total resources (fiscal and non-tax) of local or federated governments in the total state budget and (ii) the tax index which is the share of tax revenue in the local government budget; X_it is the matrix of other explanatory variables composed of the youth unemployment rate, the inflation rate, and institutional variables that reflect the state of governance and democracy. It must be said that youth unemployment, coupled with the increase in the general price level, increases the vulnerability of the population and accentuates poverty and income inequalities at the origin of housing and environmental inequalities. These inequalities can be accentuated in the context of poor institutions. According to Hassan et al (2020), good institutions are a guarantee of sustainable development.

There is no empirical evidence in Africa that sectoral and local policies can be taken into account in the simultaneous assessment of environmental and habitat inequalities. Yet, it is on this continent that waste management and habitat problems are most acute. Environmental inequalities are approximated by the number of people living in unsanitary conditions as a result of poor waste management⁴. Habitat inequalities are measured by the proportion of the population living in unhealthy areas.

3.2 The estimation technique: the Generalized System Moment Method

Based on the assumption that the level of past inequalities could influence the level of current inequalities, we opt for a dynamic panel whose estimation by Ordinary Least Squares (OLS) gives spurious and less convergent regressions. We first estimate by OLS which better deals with the difficulties inherent in dynamic panel data. Under this specification, three problems are solved to obtain robust estimators. First, the endogeneity problem that may exist, for example, between income inequality and real GDP per capita. Second, the problem of double causality between inequality and urbanisation on the one hand, and GDP per capita on the other. In the same way that the process of urbanisation can affect inequality, inequality can hinder urbanisation. Finally, the existence of a muticollinearity problem, source of the autoregressive character of the model and of the error term, is reaffirmed by the presence of a minimal variance.

These problems are solved by the first difference GMM. Blundell and Bond (1998) show that the efficiency of the difference-based GMM of Arellano and Bond (1991) is reduced by the limit imposed on the number of instruments in the model. Estimation by the System GCM overcomes this limitation. It combines the difference equation with the level equation. The first difference equation is estimated simultaneously with the level equation by the GMMs. In the level equation, the variables are instrumented by their first differences. Blundell and Bond (1998) tested this method using Monte Carlo simulations. They find that the System MMG estimator performs better than the difference MMG estimator which only exploits the moment conditions of the first difference equation with level lagged variables as instruments.

3.3 Data sources

The data are derived from three main sources: the Government Finance Statistics (2020) for fiscal decentralisation, the World Bank Database (2022) for macroeconomic variables and UN-HABITAT (2018) for specific data on environmental and housing inequalities. Data on institutional variables are from Polityiv Project Online (2018). The study covers 17 countries in Africa.

The time horizon covers the period 2005–2018. The choice of the period is dictated by the availability of data obtained simultaneously for the countries in the sample. The period covers the different evolutions of the inequality indices.

The results of the model are presented first, followed by the robustness results.

4.1 The results of the basic model

The results of the effects of fiscal decentralisation on environmental and housing inequalities are recorded in Tables 1 and 2. In Table 1, fiscal decentralisation is captured by the resource index, while in Table 2 it is approximated by the tax index. But we analyse the effect of fiscal decentralisation on environmental inequalities on the one hand and on housing inequalities on the other.

4.1.1 Impact of fiscal decentralisation on environmental inequalities in Africa

After estimating our models using ordinary least squares and fixed effects, the results indicate that resource decentralisation has a statistically significant and negative effect on environmental inequalities in African countries (Table 1). Indeed, if we retain the results of the ordinary least squares method, all other things being equal, a 1% increase in local government resources results in a 21.55% reduction in environmental inequalities. The result remains the same when using the fixed effect model. This confirms the results of Ikporukpo (2004) in Nigeria. The author showed how resources from environmental exploitation, especially oil resources, are distributed equitably among federal, state and local governments in order to help address environmental issues. The truth is that environmental inequalities are both natural (in the case of environmental resources) and human (in the case of externalities). Externalities (e.g. urban waste), contrary to Tanzi's (1995) view, can be effectively managed by local government provided that it has the resources to do so. Fiscal decentralisation can contribute to this.

When we look at the other variables, we notice from the results provided by the different methods that inflation increases environmental inequalities while the control of corruption has a reducing effect on environmental inequalities in African countries when the ordinary least squares method is used. This can be explained by the fact that, in general, inflation accentuates the deterioration of the living conditions of populations with low purchasing power. These poor conditions lead to economic inequalities which in turn increase environmental inequalities. According to Ongo and Song (2019), economic, environmental and housing inequalities are interrelated so that increases in one can exacerbate the other. However, their reduction can be ensured when resources are used exactly for what they were intended.

In addition, high inflation and unemployment rates are likely to increase environmental inequalities in decentralised local governments in Africa. Indeed, exacerbated levels of inflation and unemployment push young people into informal activities, sometimes generating insalubrity which increases environmental inequalities through the increase in urban waste observed in unhealthy neighbourhoods. This is not necessarily a fatality, provided that cities work towards sustainable development. Odour nuisance and poor air quality resulting in part from inefficient transport policies and inappropriate use of communal spaces, leading to heavy traffic, as well as the presence of factories polluting residential areas. The absence of a real policy to control inflation and unemployment forces residents to live under the aegis of the informal sector which induces noise, smoke and unpleasant fumes in a visually unpleasant environment, and undermines their well-being with epidemic, cyclonic, landslide, water and soil pollution risks. These structural risks are not yet sufficiently taken into account in the definition and implementation of public policies.

Table 1

Fiscal Decentralisation and Environmental Inequality in Africa
VARIABLES	Enviro_Ine	Enviro_Ine	Enviro_Ine	Enviro_Ine	Enviro_Ine	Enviro_Ine	Enviro_Ine	Enviro_Ine	Enviro_Ine	Enviro_Ine
			OLS					FE
RevFD	-21.55***	-22.42***	-21.49***	-19.87***	-23.92***	-28.00*	-32.10**	-33.45**	-27.65*	-28.84*
	(5.052)	(4.956)	(4.994)	(4.551)	(5.692)	(15.36)	(15.66)	(15.41)	(15.45)	(16.06)
Inflation		0.159*					0.114
		(0.0900)					(0.0893)
Unemp			-0.0499					0.428**
			(0.0377)					(0.209)
ControlofCorrup				-1.665***					-0.675
				(0.464)					(2.213)
Totalseatslegislat					0.00283					-8.62e-05
					(0.00260)					(0.0105)
Constant	5.647***	4.693***	6.110***	4.783***	5.211***	6.205***	5.826***	2.666	5.883***	6.301**
	(0.681)	(0.670)	(0.825)	(0.635)	(0.726)	(1.352)	(1.381)	(2.188)	(1.720)	(3.107)
Comments	153	153	153	153	152	153	153	153	153	152
R-squared	0.106	0.144	0.112	0.163	0.107	0.024	0.036	0.054	0.025	0.026
Fisher	18.19	10.27	9.825	15.96	9.310	3.326	2.478	3.789	1.698	1.747
corr						-0.145	-0.193	-0.700	-0.106	-0.168
Source: Authors' computation - Standard errors in parentheses, * p < 0.01, p < 0.05, * p < 0.1

4.1.2 Impacts of decentralisation of local tax revenues on housing inequalities in Africa

Unlike the first table, Table 2 presents the results of the effect of fiscal decentralisation on housing inequalities. But as for environmental inequalities, fiscal decentralisation is captured by a single indicator, the tax index. The reason is that the approximation of decentralisation by the income index provides inconclusive results as it was the case for the tax component in environmental inequalities. With this clarification, the results in Table 2 are provided by the pooled panel OLS method and the fixed effect panel method. And while the first technique provides statistically significant results, the second method does not provide conclusive results. Therefore, if we look at the OLS results, the finding is that fiscal decentralisation reduces the level of housing inequalities. As such, a one-point increase in the level of local tax revenue reduces the current level of housing inequality by 5.49 percentage points in these countries. This can be explained by the fact that reducing housing inequalities requires the development of housing infrastructure. This requires significant financial resources, which are scarce in the African context. With more transfers from central governments than from taxation, the resources of African local governments, in its fiscal component, are made up of housing taxes in addition to CACs (communal additional cents) (Yatta, 2009). It can therefore be assumed that an increase in local tax revenues increases the development of modern housing, which reduces housing inequalities. Schuster and Hoffmann-Martinot (1985) already showed the role of decentralisation in the modernisation of housing in Germany.

With regard to the control variables, only the corruption control variable is positive and significant at the 5% level. This suggests that anti-corruption measures as practiced over the study period in Africa do not reduce housing inequalities. The result of this variable contributes to reducing the impact of our variable of interest from 5.49 to 5.43. But the number of local government representatives in parliament, even if it is not significant, contributes to raising both the level of significance of fiscal decentralisation (from 10–1%) and its impact, which then rises to 8.88. Thus, decentralisation can contribute to reducing housing inequalities. These results corroborate those of Wei et al (2017) and Eeckhout et al (2010).

4.2 Robustness results

To check the robustness of the results obtained, we use the method of generalized moments in system (MMG) to estimate the panel data model. The results reported in Table (3) remain consistent with those obtained previously.

The implementation of a fiscal decentralisation policy has a significant negative effect on environmental and housing inequalities in African countries. As explanations, we can argue that the implementation of a fiscal decentralisation policy makes local governments more effective in driving the local development process. Decentralised local authorities are more aware of the problems that hinder development and the blossoming of the population in terms of the environment and housing. And thanks to their proximity and information advantage, they are able to define effective and appropriate public policies to drive this development. For this to happen, their financial capacities need to be increased. This point of view is supported by the results of Geoffroy et al (2020) and Boukbech and Liouaeddine (2021).

Table 2

Fiscal Decentralisation and Housing Inequality in Africa
VARIABLES	HousingIne	HousingIne		HousingIne	HousingIne	HousingIne	HousingIne	HousingIne		HousingIne	HousingIne	HousingIne
			OLS						FE
TaxFD	-5.490*	-9.603*		-5.579**	-5.432*	-8.882***	14.77	15.20		12.18	11.25	5.441
	(2.817)	(5.517)		(2.646)	(2.805)	(2.956)	(29.98)	(30.83)		(30.32)	(28.85)	(30.19)
Inflation		-0.478						-0.0142
		(0.355)						(0.200)
Unemp				0.0260						0.216
				(0.0661)						(0.305)
ControlofCorrup					1.294**						7.575**
					(0.553)						(3.083)
Totalseatslegislat						0.00485						-0.0432*
						(0.00333)						(0.0247)
Constant	2.283***	4.425**		1.952	2.641***	1.396	1.380	1.419		-1.282	3.651**	11.31*
	(0.678)	(2.101)		(1.349)	(0.808)	(1.030)	(1.384)	(1.499)		(4.015)	(1.620)	(5.839)
Comments	72	72		72	72	71	72	72		72	72	71
R-squared	0.007	0.061		0.009	0.036	0.024	0.004	0.004		0.012	0.095	0.053
Fisher	3.798	1.706		4.333	2.817	4.548	0.243	0.122		0.370	3.150	1.652
corr							-0.363	-0.364		-0.475	-0.725	-0.844
Source: Authors' computation - Standard errors in parentheses, * p < 0.01, p < 0.05, * p < 0.1

Table 3

Fiscal Decentralisation and Inequality in Africa
VARIABLES	Enviro_Ine	Enviro_Ine	Enviro_Ine	Enviro_Ine	Enviro_Ine	HousingIne	HousingIne		HousingIne	HousingIne	HousingIne
			MMG					MMG
TaxFD	-8.565**	-6.401**	-10.66***	-17.79**	-16.88***	-1.973	-6.631*		-1.142	-5.391***	-5.904***
	(3.036)	(2.574)	(2.539)	(6.752)	(3.988)	(2.529)	(3.133)		(2.301)	(0.856)	(1.145)
Inflation		0.212***					-0.346
		(0.0635)					(0.282)
Unemp			0.113**						0.103***
			(0.0492)						(0.0241)
ControlofCorrup				-10.06***						-0.576
				(1.495)						(0.327)
totalseatsleg					0.00267						0.00125
					(0.00565)						(0.00232)
Constant	2.363***	1.540**	1.334	0.740	2.859*	1.138**	2.837**		-0.227	1.578***	1.418*
	(0.667)	(0.523)	(0.996)	(1.342)	(1.299)	(0.441)	(1.111)		(0.655)	(0.206)	(0.667)
Comments	61	61	61	61	60	61	61		61	61	60
Nber of ind	10	10	10	10	10	10	10		10	10	10
ar1p	0.329	0.379	0.282	0.583	0.349	0.411	0.885		0.422	0.411	0.421
ar2	-0.366	-0.569	-0.433	-0.445	-0.349	-0.304	-0.430		-0.671	-0.521	-0.750
ar2p	0.715	0.569	0.665	0.656	0.727	0.761	0.667		0.502	0.602	0.453
j	7	7	9	7	9	7	7		9	10	9
sarganp	0	0	0	1.84e-05	0	0.0711	0.0528		0.0756	0.0871	0.0464
hansenp	0.370	0.296	0.485	0.430	0.159	0.580	0.407		0.716	0.359	0.239
Fisher	14.90	17.57	164.5	46.04	149.3	195.2	159.1		142.4	352.3	114.6
Source: Authors' computation - Standard errors in parentheses, * p < 0.01, p < 0.05, * p < 0.1

This study proposed an empirical investigation of the effect of fiscal decentralisation on inequality in Africa. For a sample of 17 African countries over the period 2005 to 2018, we used a set of estimation methods. Our estimation results show that fiscal decentralisation policy negatively affects inequality in the sample countries. More specifically, decentralised fiscal policy negatively affects environmental inequalities and reduces people's vulnerability to housing inequalities. These results remain robust to the use of alternative estimation techniques. This allows us to make some suggestions for economic policies.

First of all, for decentralisation to be functional, decentralised local authorities must be provided with sufficient resources to carry out their functions. In this regard, African states must increase resources for local authorities both through grants and tax transfers. This would make it possible to increase investment in modern housing, urban sanitation and even the refocusing of informal activities through small-scale industrialisation, which is beneficial to GDP. Secondly, by ensuring that these resources are used for what they are intended, these states must create favourable conditions for the professional integration of young people and fight against inflation. Unemployment and inflation are part of the stabilising function of the state. As an extension of this study, it may be interesting to see what role local governments can play in the process of fighting unemployment, inflation and even corruption.

Author Contribution

Marcel DAMA DIE contributed to the conception, introduction and literature review.Loudi NJOYA contributed to database mobilization, analysis and interpretation of results.Philémon VOTSOMA contributed to writing the stylized facts and interpreting the results.

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No competing interests reported.

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Fiscal decentralization and sustainable development in Africa: an empirical investigation from inequality

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Abstract

1. Introduction

2. Review of the literature

2.1 Theoretical foundations of the relationship between fiscal decentralisation and environmental inequalities

2.2 Some empirical evidence

3. Empirical model, estimation technique and data

3.1 The empirical model

3.2 The estimation technique: the Generalized System Moment Method

3.3 Data sources

4. Estimates and discussion of results

4.1 The results of the basic model

4.1.1 Impact of fiscal decentralisation on environmental inequalities in Africa

4.1.2 Impacts of decentralisation of local tax revenues on housing inequalities in Africa

4.2 Robustness results

5. Conclusion and policy suggestions

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Author Contribution

References

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