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Electoral Competition as a Determinant of Fiscal Decentralization

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  • Mario Jametti
  • Marcelin Joanis

Abstract

Fiscal decentralization is high on the agenda in policy fora. This paper empirically investigates the underlying causes of fiscal decentralization, based on the predictions of a simple political economy model. We argue that the likeliness that a central government engages in devolution of powers depends in important ways on the political forces that it faces, the theory’s main insight being that the central government’s electoral strength should, all else being equal, decrease that government’s share of spending. Consistent with the model’s predictions, empirical results from a panel of democracies support the relevance of political factors as determinants of fiscal decentralization. The relationship between central government electoral strength and both expenditure and revenue centralization emerges as negative and non-linear.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2011/wp-cesifo-2011-09/cesifo1_wp3574.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3574.

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Date of creation: 2011
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Handle: RePEc:ces:ceswps:_3574

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Keywords: fiscal decentralization; fiscal federalism; vertical interactions; partial decentralization; elections;

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References

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  1. Arzaghi, Mohammad & Henderson, J. Vernon, 2005. "Why countries are fiscally decentralizing," Journal of Public Economics, Elsevier, vol. 89(7), pages 1157-1189, July.
  2. Marcelin Joanis, 2011. "The road to power: partisan loyalty and the centralized provision of local infrastructure," Public Choice, Springer, vol. 146(1), pages 117-143, January.
  3. Panizza, Ugo, 1999. "On the determinants of fiscal centralization: Theory and evidence," Journal of Public Economics, Elsevier, vol. 74(1), pages 97-139, October.
  4. Lars P. Feld & Gebhard Kirchgässner & Christoph A. Schaltegger, 2003. "Decentralized Taxation and the Size of Government: Evidence from Swiss State and Local Governments," CESifo Working Paper Series 1087, CESifo Group Munich.
  5. Ruben Enikolopov & Ekaterina Zhuravskaya, 2006. "Decentralization and Political Institutions," Working Papers w0065, Center for Economic and Financial Research (CEFIR).
  6. Marius BRÜLHART & Mario JAMETTI, 2007. "Does Tax Competition Tame the Leviathan?," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 07.09, Université de Lausanne, Faculté des HEC, DEEP.
  7. Désirée Teobaldelli, 2011. "Federalism and the shadow economy," Public Choice, Springer, vol. 146(3), pages 269-289, March.
  8. Olivier Cadot & Lars-Hendrik Röller & Andreas Stephan, 2004. "Contribution to Productivity or Pork Barrel?: The Two Faces of Infrastructure Investment," Discussion Papers of DIW Berlin 458, DIW Berlin, German Institute for Economic Research.
  9. Marcelin Joanis, 2008. "Intertwined Federalism: Accountability Problems under Partial Decentralization," Cahiers de recherche 08-22, Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke.
  10. Brian Knight, 2003. "Parochial Interests and the Centralized Provision of Local Public Goods: Evidence from Congressional Voting on Transportation Projects," NBER Working Papers 9748, National Bureau of Economic Research, Inc.
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Cited by:
  1. Lars-Erik Borge & Jan K. Brueckner & Jorn Rattso, 2012. "Partial Fiscal Decentralization and Public-Sector Heterogeneity: Theory and Evidence from Norway," CESifo Working Paper Series 3954, CESifo Group Munich.

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