Explaining fiscal decentralization and the role of ethnic diversity

This paper considers the causes of fiscal decentralization with a specific focus on the role of ethnic diversity. To do so, I employ an instrument for ethnic diversity based on the origin of anatomically modern human life. Using two measures of decentralization that capture decision making autonomy and accounting for the depth of divisions between ethno-linguistic groups using the structure of language trees, I find that ethnic diversity has a positive effect on the degree of decentralization. It is the amount of fractionalization towards the leaves of the trees, where groups are more numerous and less distinct, that drive decentralization.