The decentralization tradeoff for complementary spillovers
AbstractWe examine a symmetric two-district setting with spillovers of local public spending where a spill-in from the foreign spending is not a substitute, but a complement to domestic spending. Specifically, we assume production of two district-specific public goods out of two complementary district-specific inputs. We compare equilibria in non-cooperative decentralization and cooperative centralization for different spillovers, complementarities and cost-division rules, and control for the effects of strategic delegation and the feasibility of voluntary contributions to the input in the foreign district. We find that centralization welfare-dominates decentralization in most institutional settings and for a wide range of parameters, yet we can also identify necessary and sufficient conditions for decentralization to welfare-dominate centralization. The setup features three novelties: In the absence of transfers, welfare in decentralization increases in spillovers, strategic delegation in decentralization improves welfare, and centralized provision may be non-monotonic in spillovers.
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Bibliographic InfoArticle provided by Springer in its journal Review of Economic Design.
Volume (Year): 16 (2012)
Issue (Month): 1 (March)
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Other versions of this item:
- Martin Gregor & Lenka Šastná, 2011. "The Decentralization Tradeoff for Complementary Spillovers," Working Papers IES 2011/13, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Apr 2011.
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
- H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
- H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
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