Fiscal decentralization and the performance of higher education institutions: the case of Europe

This paper empirically evaluates the impact of fiscal decentralization on the performance of higher education systems. To test this relationship,we build up a panel dataset composed of European countries. Countrylevel performance is measured by an indicator using data from the Shanghai ranking. Using a dynamic panel approach, we find that a higher share of government spending coming from decentralized levels of governmentsleads to an improvement of the performance of research-intensive higher education institutions. This result is confirmed by the use of an instrumental variable approach. We argue that a more decentralized higher education system increases the ability to attract and retain top scholars.