Public sector centralization and debt levels in the OECD

Abstract: The connection between general government debt levels and centralization of general government expenditure is compared in 31 countries 1995-2019 and 35 countries 1972-2019, with four country groups in each of the datasets analyzed further. Connections between centralization and changes in debt levels are found to be mostly insignificant and results unstable to the inclusion of lagged changes in debt levels. Running regressions on the four country groups gives notably different results with higher explanatory power but centralization nonetheless tends to remain insignificant. The dependence of results on splitting the data indicates possible heterogenous effects and underlines the utility of performing further research on a country-specific basis instead of using pooled regressions. Regardless, centralization is found to have poor explanatory power for the overall changes in debt levels.