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Revisiting the "Decentralization Theorem"--On the role of externalities

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  • Koethenbuerger, Marko

Abstract

The "Decentralization Theorem" [Oates, W.E., 1972. Fiscal Federalism. Harcourt Brace Jovanovich, New York] is central to the discussion of fiscal federalism. We revisit the role of consumption spillovers in evaluating the merits of (de)centralization. Unlike the general prediction, a higher degree of spillovers may reduce the difference in utility of centralization and decentralization. The non-monotonicity result relates to the difference in expenditures on public consumption. Provided decentralized choices yield higher levels of public expenditure, a rise in the amount of spillovers allows residents to enjoy larger gains in public consumption (and thereby utility) under decentralization relative to centralization.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 64 (2008)
Issue (Month): 1 (July)
Pages: 116-122

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Handle: RePEc:eee:juecon:v:64:y:2008:i:1:p:116-122

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Web page: http://www.elsevier.com/locate/inca/622905

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Keywords: Federalism Decentralization Theorem Externality Policy uniformity;

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  1. Jan K. Brueckner, 2004. "Fiscal Decentralization with Distortionary Taxation: Tiebout vs. Tax Competition," International Tax and Public Finance, Springer, vol. 11(2), pages 133-153, 03.
  2. Wallace E. Oates, 1999. "An Essay on Fiscal Federalism," Journal of Economic Literature, American Economic Association, vol. 37(3), pages 1120-1149, September.
  3. Etro, Federico & Ageloni, Ignazio & Alesina, Alberto, 2005. "International Unions," Scholarly Articles 4553008, Harvard University Department of Economics.
  4. Alesina, Alberto & Spolaore, Enrico, 1997. "On the Number and Size of Nations," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1027-56, November.
  5. Brueckner, Jan K., 2006. "Fiscal federalism and economic growth," Journal of Public Economics, Elsevier, vol. 90(10-11), pages 2107-2120, November.
  6. Bergstrom, Theodore & Blume, Lawrence & Varian, Hal, 1986. "On the private provision of public goods," Journal of Public Economics, Elsevier, vol. 29(1), pages 25-49, February.
  7. Guido Tabellini, 2003. "Principles of Policymaking in the European Union: an Economic Perspective," Levine's Working Paper Archive 506439000000000157, David K. Levine.
  8. Alberto Alesina & Robert J. Barro, 2000. "Currency Unions," NBER Working Papers 7927, National Bureau of Economic Research, Inc.
  9. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
  10. Rubinchik-Pessach, Anna, 2005. "Can decentralization be beneficial?," Journal of Public Economics, Elsevier, vol. 89(7), pages 1231-1249, July.
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Cited by:
  1. Martin Gregor & Lenka Stastna, 2012. "The decentralization tradeoff for complementary spillovers," Review of Economic Design, Springer, vol. 16(1), pages 41-69, March.
  2. Joan Costa-i-Font, 2012. "Fiscal Federalism and European Health System Decentralization: A Perspective," LEQS – LSE 'Europe in Question' Discussion Paper Series 55, European Institute, LSE.
  3. Janos Feidler & Klaas Staal, 2012. "Centralized and decentralized provision of public goods," Economics of Governance, Springer, vol. 13(1), pages 73-93, March.

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