The aim of this thesis is to analyse the impact of fiscal decentralisation on the Australian economy, with a particular focus on economic growth and five important macroeconomic variables. It begins by providing an historical account of the evolution of Australia's fiscal structure since Federation and how this has impacted on Australia's current Federal-State relations. The future direction of this relationship is then hypothesised, focusing specifically on the current Government's intentions to reform the Council of Australian Governments.
Following this account is an empirical investigation into the effect of fiscal decentralisation on Australia's economy. Measuring fiscal decentralisation is a somewhat contentious issue and, as such, this thesis first collates previous measures employed in the literature and discusses the relative importance of each, particularly emphasising their relevance to Australia. From here, the empirical analysis extends to the evaluation of the effect of fiscal decentralisation on five key macroeconomic variables in Australia: inflation and macroeconomic stability, public sector size, budget balance, investment and capital accumulation, and income distribution. Finally, this thesis studies the relationship between fiscal decentralisation and economic growth from both an aggregated and State-level perspective using time series, cross-sectional, panel data and Bayesian estimation techniques.
The central conclusion of this thesis is that there is no straightforward answer on what impact fiscal decentralisation has on the Australian economy. The multi-dimensional nature of fiscal decentralisation means that different aspects have varying effects on Australia's economic growth and key macroeconomic variables. Accordingly, to gain a comprehensive understanding of fiscal decentralisation, this thesis has incorporated sixteen measures of decentralisation in an attempt to highlight the numerous channels through which decentralisation can have an effect. For example, decentralisation of government expenditure responsibilities in Australia is expected to decrease medium-term economic growth, worsen the Federal government's budget balance and increase the size of the public sector. Revenue decentralisation however, increases medium-term economic growth, improves the Federal government's budget balance and enhances macrostability.