Heterogeneity in individual preferences for public expenditure: what suggestions for the assignment of competencies to the EU?

Building on the principles of the classical thoey of fiscl federalism, the new political economy of multi-level government indicates a number of criteria asa guide for the efficient assignment of competencies between the European Union (EU) and the member states: internalize interregional spillovers; exploit economies of scale; take into account heterogeneity of preferencies. The aim of this paper is to compare the welfare effects that the heterogeneity of individual preferencies for public expenditures imply with the centralized and the decentralized solutions. In this perspective a median voter mechanism of collective decision is assumed to work both at national and EU level. Using data from a large international survey (ISSP), a series of econometric models has been estimated in order to make individual attitudes for public expenditures representative and comparable across different categories and different countries. A measurement of the individual and total welfare loss has then been derived in the cases when the decision upon the level of public provision is taken by the national or by the median EU voter respectively. The empirical analysis reveals that in some sectors of public expenditures (health, education, employment benefits) centralized solution welfare dominates (or is close to dominating) decentralization even in the absence of economies of scale and interregional spillovers.