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The Impact of Referendums on the Centralisation of Public Goods Provision: A Political Economy Approach

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  • Jan Schnellenbach
  • Lars P. Feld
  • Christoph A. Schaltegger

Abstract

The paper compares decision-making on the centralisation of public goods provision in the presence of regional externalities under representative and direct democratic institutions. A model with two regions, two public goods and regional spillovers is developed in which uncertainty over the true preferences of candidates makes strategic delegation impossible. Instead, it is shown that the existence of rent extraction by delegates alone suffices to make cooperative centralisation more likely through representative democracy. In the non-cooperative case, the more extensive possibilities for institutional design under representative democracy increase the likelihood of centralisation. Direct democracy may thus be interpreted as a federalism-preserving institution.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1803.

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Date of creation: 2006
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Handle: RePEc:ces:ceswps:_1803

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Keywords: centralisation; direct democracy; representative democracy; public good provision;

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  1. Robert Dur & Hein Roelfsema, 2005. "Why does centralisation fail to internalise policy externalities?," Public Choice, Springer, Springer, vol. 122(3), pages 395-416, March.
  2. Besley, Timothy & Coate, Stephen, 1997. "An Economic Model of Representative Democracy," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(1), pages 85-114, February.
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  7. Ellingsen, Tore, 1998. "Externalities vs internalities: a model of political integration," Journal of Public Economics, Elsevier, Elsevier, vol. 68(2), pages 251-268, May.
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  9. Martin J. Osborne & Al Slivinksi, 1995. "A Model of Political Competition with Citizen-Candidates," Department of Economics Working Papers 1995-01, McMaster University.
  10. Davis, Otto A & DeGroot, Morris H & Hinich, Melvin J, 1972. "Social Preference Orderings and Majority Rule," Econometrica, Econometric Society, Econometric Society, vol. 40(1), pages 147-57, January.
  11. Redoano, Michela & Scharf, Kimberley Ann, 2002. "The Political Economy of Policy Centralization: Direct Versus Representative Democracy," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3631, C.E.P.R. Discussion Papers.
  12. Charles Blankart, 2000. "The Process of Government Centralization: A Constitutional View," Constitutional Political Economy, Springer, Springer, vol. 11(1), pages 27-39, March.
  13. Alberto Alesina & Enrico Spolaore, 1995. "On the Number and Size of Nations," NBER Working Papers 5050, National Bureau of Economic Research, Inc.
  14. Alesina, Alberto, 1988. "Credibility and Policy Convergence in a Two-Party System with Rational Voters," American Economic Review, American Economic Association, American Economic Association, vol. 78(4), pages 796-805, September.
  15. Matsusaka, John G & McCarty, Nolan M, 2001. "Political Resource Allocation: Benefits and Costs of Voter Initiatives," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 17(2), pages 413-48, October.
  16. Grandmont, Jean-Michel, 1978. "Intermediate Preferences and the Majority Rule," Econometrica, Econometric Society, Econometric Society, vol. 46(2), pages 317-30, March.
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