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Voting, Lobbying and the Decentralization Theorem

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  • Ben Lockwood

Abstract

This 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 Info

Paper provided by European University Institute in its series Economics Working Papers with number ECO2007/06.

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Date of creation: 2007
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Handle: RePEc:eui:euiwps:eco2007/06

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Keywords: Decentralization; majority voting; lobbying; local public goods;

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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. 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.
  3. Redoano, Michela, 2003. "Does Centralisation Affect The Number And Size Of Lobbies?," The Warwick Economics Research Paper Series (TWERPS) 674, University of Warwick, Department of Economics.
  4. Alberto Alesina & Enrico Spolaore, 1995. "On the Number and Size of Nations," NBER Working Papers 5050, National Bureau of Economic Research, Inc.
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Cited by:
  1. Martin Gregor & Lenka Stastna, 2012. "The decentralization tradeoff for complementary spillovers," Review of Economic Design, Springer, vol. 16(1), pages 41-69, March.
  2. Toke Aidt & Jayasri Dutta, 2010. "Fiscal Federalism and Electoral Accountability," CESifo Working Paper Series 3022, CESifo Group Munich.
  3. Ruta, Michele, 2009. "Political constraints to growth in an economic union," Journal of Public Economics, Elsevier, vol. 93(7-8), pages 989-997, August.
  4. Inga Hillesheim, 2012. "Relative consumption and majority voting: supplementing Oates’ “Decentralization Theorem”," Journal of Economics, Springer, vol. 105(1), pages 29-43, January.

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