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Relative Capture of Local and Central Governments: An Essay in the Political Economy of Decentralization

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  • Bardhan, Pranab
  • Mookherjee, Dilip

Abstract

A common presumption is that decentralization is prone to a potential pitfall owing to the greater vulnerability of local governments to capture by local elites. We investigate the determinants of relative capture of local and national governments theoretically, in the context of an extended version of the Baron-Grossman-Helpman model of electoral competition with lobbying by special interest groups. A number of factors do provide support to the traditional presumption, such as reduced cohesiveness of interest groups, higher levels of voter awareness, and greater electoral competition at the national level. A number of other factors may, however, create an opposite tendency for lower capture at the local level. These include less electoral uncertainty at the national level, and a higher value of campaign funds in national elections owing to their fungibility across different districts. Relative capture also depends on heterogeneity across districts with respect to levels of local inequality and poverty: accordingly decentralization will tend to increase capture in high inequality districts and lower it in low inequality districts. Power-sharing between parties at the national level, due either to coalition governments or proportional representation, limits the extent of national capture. We conclude that empirical research is necessary to investigate the extent and determinants of relative capture.

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Paper provided by Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley in its series Center for International and Development Economics Research, Working Paper Series with number qt9gx7t5hd.

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Date of creation: 25 Mar 2002
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Handle: RePEc:cdl:ciders:qt9gx7t5hd

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Keywords: capture; decentralization; electoral competition; local government;

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  1. Torsten Persson & Guido Tabellini, 1997. "Political Economics and Macroeconomic Policy," NBER Working Papers 6329, National Bureau of Economic Research, Inc.
  2. Grossman, Gene M & Helpman, Elhanan, 1996. "Electoral Competition and Special Interest Politics," Review of Economic Studies, Wiley Blackwell, vol. 63(2), pages 265-86, April.
  3. Galasso, Emanuela & Ravallion, Martin, 2000. "Distributional outcomes of a decentralized welfare program," Policy Research Working Paper Series 2316, The World Bank.
  4. R. L. Hanson & J. T. Hartman, . "Do welfare magnets attract?," Institute for Research on Poverty Discussion Papers 1028-94, University of Wisconsin Institute for Research on Poverty.
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