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Why does Centralisation fail to internalise Policy Externalities?

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  • Robert A.J. Dur

    ()
    (Erasmus University Rotterdam)

  • Hein J. Roelfsema

    ()
    (Utrecht University)

Abstract

We provide an explanation why centralisation of political decision makingresults in overspending in some policy domains, whereas too low spending persists in others.We study a model in which delegates from jurisdictions bargain over local public goods provision.If all of the costs of public goods are shared through a common budget, policy makersdelegate bargaining to ‘public good lovers’, resulting in overprovision of public goods. If asufficiently large part of the costs can not be shared, underprovision persists because policymakers delegate bargaining to ‘conservatives’. We derive financing rules that eliminate theincentives for strategic delegation. See publication in Public Choice , 2005, 122(3-4), 395-416.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 02-056/3.

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Date of creation: 11 Jun 2002
Date of revision: 11 Nov 2003
Handle: RePEc:dgr:uvatin:20020056

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Keywords: Centralised decision making; strategic delegation; financing rules.;

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  1. Alberto Alesina & Ignazio Angeloni & Federico Etro, 2001. "The Political Economy of International Unions," Harvard Institute of Economic Research Working Papers 1939, Harvard - Institute of Economic Research.
  2. Alberto Alesina & Ignazio Angeloni & Ludger Schuknecht, 2005. "What does the European Union do?," Public Choice, Springer, vol. 123(3), pages 275-319, June.
  3. Torsten Persson & Guido Tabellini, . "Political Economics and Macroeconomic Policy," Working Papers 121, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
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  5. Besley, Timothy & Coate, Stephen, 2003. "Centralized versus decentralized provision of local public goods: a political economy approach," Journal of Public Economics, Elsevier, vol. 87(12), pages 2611-2637, December.
  6. Mark Gradstein, 2000. "The Political Economy of Sustainable Federations," CESifo Working Paper Series 315, CESifo Group Munich.
  7. Persson, Torsten & Tabellini, Guido, 1994. "Does centralization increase the size of government?," European Economic Review, Elsevier, vol. 38(3-4), pages 765-773, April.
  8. V. V. Chari & Larry E. Jones & Ramon Marimon, 1997. "The economics of split-ticket voting in representative democracies," Working Papers 582, Federal Reserve Bank of Minneapolis.
  9. Alesina, Alberto & Spolaore, Enrico, 1997. "On the Number and Size of Nations," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1027-56, November.
  10. Isidoro Mazza & Frans Winden, 2002. "Does Centralization Increase the Size of Government? The Effects of Separation of Powers and Lobbying," International Tax and Public Finance, Springer, vol. 9(4), pages 379-389, August.
  11. Segendorff, Björn, 1998. "Delegation of Bargaining and Power," Working Paper Series in Economics and Finance 248, Stockholm School of Economics.
  12. DelRossi, Alison F. & Inman, Robert P., 1999. "Changing the price of pork: the impact of local cost sharing on legislators' demands for distributive public goods," Journal of Public Economics, Elsevier, vol. 71(2), pages 247-273, February.
  13. Matthias Brueckner, 2000. "Unanimity Versus Consensus Bargaining Games: Strategic Delegation and Social Optimality," Econometric Society World Congress 2000 Contributed Papers 1106, Econometric Society.
  14. Guillaume Cheikbossian, 2000. "Federalism, distributive politics and representative democracy," Economics of Governance, Springer, vol. 1(2), pages 105-122, 07.
  15. Bolton, Patrick & Roland, Gérard, 1995. "The Break up of Nations: A Political Economy Analysis," CEPR Discussion Papers 1225, C.E.P.R. Discussion Papers.
  16. Alberto Alesina & Ignazio Angeloni & Federico Etro, 2001. "Institutional Rules for Federations," Harvard Institute of Economic Research Working Papers 1940, Harvard - Institute of Economic Research.
  17. Wacziarg, Romain & Alesina, Alberto, 1999. "Is Europe Going Too Far?," Scholarly Articles 4553012, Harvard University Department of Economics.
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