Investigating the Interaction between Financial Decentralization (Expenditure and Income) and Regional Development in Iran

Regarding the dual relationship of various studies between financial decentralization (expenditure and income) and regional development at the national level, this study examined the relationship between regional inequality and financial decentralization (expenditure and income) in the provinces of the country. For this purpose, the calculations were carried out in two stages: In the first stage, the index of regional inequality (CIRD) on 5 dimensions (macroeconomics, science and innovation, environmental sustainability, human capital and public services) is calculated by using the principal component analysis (PCA). This index is the development composite index that it is calculated for the years of 2006 and 2016. In the second part, using the simultaneous equations (SEs) and error component two-stage least squares (EC2SLS), examine the dual relationship of financial decentralization (expenditure and income) and regional development. In the next section, which examined the interaction of financial decentralization variables and regional development, the effect of both decentralization variables on regional development index are significant but the effect of financial decentralization of expenditures on increasing regional development is greater than the effect of financial decentralization of income.