Fiscal Decentralization and Subjective Well-Being: A New Perspective Using Dynamic Spatial Panel Model

This study investigates the effects of fiscal decentralization on the negative dimensions of subjective well-being (e.g., negative affect balance / deprivation) in a sample of 22 European countries over the period 2011–2021. Using dynamic spatial panel data analysis, the research examines how fiscal decentralization shapes perceptions of life quality. The findings reveal no significant relationship between expenditure-side fiscal decentralization and negative affect balance. However, revenue-side fiscal decentralization is found to have a significant and positive impact on the negative dimensions of subjective well-being, indicating that it increases individuals’ negative emotional experiences and perceptions of deprivation. Moreover, the study confirms the presence of significant spatial dependencies on the negative dimensions of subjective well-being, highlighting the role of cross-country interactions in shaping these outcomes. These findings suggest that revenue-side fiscal decentralization may have adverse implications for individuals' life quality, emphasizing the need for policymakers to carefully consider these potential negative effects when designing decentralization policies.