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Fiscal Federalism and Endogenous Lobbies' Formation

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  • Massimo Bordignon
  • Luca Colombo
  • Umberto Galmarini

Abstract

We study lobbying behavior by firms in a two-region economy, with either centralized or decentralized provision of profit-enhancing local public goods. Firms compete either in the market, lobbying for public good provision once entered in a market, or for the market, lobbying to gain ccess to it. When firms compete in the market, we show that lobbying is unambiguously less disruptive or social welfare under decentralization. Moreover, foreign rather than domestic private nterests may be more powerful in a.ecting regional policies. On the contrary, when firms compete or the market, lobbying is mostly e.ective under decentralization, since local firms always end p forming a local monopoly. However, we show that an institutional setting in which competencies re split between the center and the periphery may dominate either full centralization or full ecentralization or both.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1017.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_1017

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Keywords: fiscal federalism; lobbying; private interests;

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References

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  1. Leonardo Felli & Antonio Merlo, 2003. "Endogenous Lobbying," STICERD - Theoretical Economics Paper Series, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE 448, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  2. Fisman, Raymond & Gatti, Roberta, 2002. "Decentralization and corruption: evidence across countries," Journal of Public Economics, Elsevier, Elsevier, vol. 83(3), pages 325-345, March.
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  5. Michela Redoano, 2007. "Does Centralization Affect the Number and Size of Lobbies?," CESifo Working Paper Series, CESifo Group Munich 1968, CESifo Group Munich.
  6. Ma, Ching-To, 1988. "Unique Implementation of Incentive Contracts with Many Agents," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 55(4), pages 555-72, October.
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  10. Persson, Torsten, 1998. "Economic Policy and Special Interest Politics," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 108(447), pages 310-27, March.
  11. Michael J. Keen & Christos Kotsogiannis, 2002. "Does Federalism Lead to Excessively High Taxes?," American Economic Review, American Economic Association, American Economic Association, vol. 92(1), pages 363-370, March.
  12. Dixit, Avinash & Grossman, Gene M & Helpman, Elhanan, 1997. "Common Agency and Coordination: General Theory and Application to Government Policy Making," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 105(4), pages 752-69, August.
  13. Bolton, Patrick & Roland, Gerard & Spolaore, Enrico, 1996. "Economic theories of the break-up and integration of nations," European Economic Review, Elsevier, Elsevier, vol. 40(3-5), pages 697-705, April.
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