Abstract
Basing fiscal federalism on the government is indeed a study to be reconsidered. This paper reflects on the effects of fiscal federalism. The Leviathan hypothesis (twisted speculation), suggests a negative relationship between fiscal decentralization and government growth. This relationship has been recently enriched by theoretical and empirical research and highlights the importance of distinguishing between grants and self-owned resources to gauge the effects of fiscal decentralization on the size of public sectors. Moreover, several controllable variables such as economic, demographic and political factors have been proved to be empirically relevant. This paper is an improvement on this literature by distinguishing between long term and short term relationships. The methods adopted in this paper are appropriate for panel cointegration techniques.
