This dissertation seeks to investigate the relationship between public sector
employment and fiscal decentralization. We develop a theoretical model that helps us
understand the interaction of the central executive’s and subnational governor’s decisions
on the level of public employees at the central and subnational levels. Our empirical work
shows that fiscal decentralization policy shifts central government employees to the
subnational government level and that the increase in public employees at the subnational
government level overwhelms the decrease in public employees at the central level. As a
result, the level of total public sector employees increases with the degree of fiscal
decentralization of a country. We also find that the levels of total public sector employees
as a percentage of population are higher in unitary country systems than those in federal
countries. The level of public employment also increases with the degree of urbanization
and with the exposure to risk of a country.