Voting, Lobbying and the Decentralization Theorem
AbstractThis paper revisits the fiscal "decentralization theorem", by relaxing the role of the assumption that governments are benevolent, while retaining the assumption of policy uniformity. If instead, decisions are made by direct majority voting, (i) centralization can welfare-dominate decentralization even if there are no externalities and regions are heterogenous; (ii) decentralization can welfare-dominate centralization even if there are positive externalities and regions are homogenous. The intuition is that the insensitivity of majority voting to preference intensity interacts with the different inefficiencies in the two fiscal regimes to give second-best results. Similar results obtain when governments are benevolent, but subject to lobbying, because now decisions are too sensitive to the preferences of the organised group.
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Bibliographic InfoPaper provided by European University Institute in its series Economics Working Papers with number ECO2007/06.
Date of creation: 2007
Date of revision:
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Decentralization; majority voting; lobbying; local public goods;
Other versions of this item:
- Ben Lockwood, 2008. "Voting, Lobbying, And The Decentralization Theorem," Economics and Politics, Wiley Blackwell, vol. 20(3), pages 416-431, November.
- Lockwood, Ben, 2007. "Voting, Lobbying, and the Decentralization Theorem," The Warwick Economics Research Paper Series (TWERPS) 798, University of Warwick, Department of Economics.
- Benjamin Lockwood, 2007. "Voting, Lobbying, and the Decentralization Theorem," CESifo Working Paper Series 2117, CESifo Group Munich.
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
- H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
- H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-06-23 (All new papers)
- NEP-CDM-2007-06-23 (Collective Decision-Making)
- NEP-POL-2007-06-23 (Positive Political Economics)
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