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Human Fallibility, Complementarity, and Fiscal Decentralization

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  • YUKIHIRO NISHIMURA
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    Abstract

    This paper examines economic growth properties under alternative fiscal organizations when a bureau's decisions are fallible. A country consists of J jurisdictions, which need a public service. In a centralized government, one authority decides on services in every jurisdiction. In a decentralized government, J authorities are in charge of each public service. An authority can have high ability or low ability, and an authority with high ability draws a good project with higher probability. We first show that the decentralized government provides the same average quality of public services, with lower variance, than does the centralized government. We then apply this result to an economic growth model where the value of the Solow residual is a constant elasticity of substitution (CES) function of public services. We show that there is a critical value of the degree of complementarity below which fiscal decentralization is more desirable than fiscal centralization for an expected economic growth, and the decentralized government has a lower variance of GDP growth. Copyright 2006 Blackwell Publishing, Inc..

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    Bibliographic Info

    Article provided by Association for Public Economic Theory in its journal Journal of Public Economic Theory.

    Volume (Year): 8 (2006)
    Issue (Month): 3 (08)
    Pages: 487-501

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    Handle: RePEc:bla:jpbect:v:8:y:2006:i:3:p:487-501

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    Cited by:
    1. Mario Jametti & Marcelin Joanis, 2014. "Elections and de facto Expenditure Decentralization in Canada," CESifo Working Paper Series 4791, CESifo Group Munich.
    2. Mario Jametti & Marcelin Joanis, 2010. "Determinants of fiscal decentralization: political economy aspects," Working Papers 2010/7, Institut d'Economia de Barcelona (IEB).
    3. Joanis, Marcelin, 2014. "Shared accountability and partial decentralization in local public good provision," Journal of Development Economics, Elsevier, vol. 107(C), pages 28-37.
    4. Marcelin Joanis, 2008. "Intertwined Federalism: Accountability Problems under Partial Decentralization," Cahiers de recherche 08-22, Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke.
    5. Furceri, Davide & Sacchi, Agnese & Salotti, Simone, 2014. "Can fiscal decentralization alleviate government consumption volatility?," MPRA Paper 54513, University Library of Munich, Germany.

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