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On the Endogenous Allocation of Decision Powers in Federal Structures

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Author Info
Oliver Lorz
Gerald Willmann ()

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Abstract

This paper provides a political-economy explanation of the degree of centralization in economic policy making. To determine which policies are to be centralized, regions select representatives who then negotiate the degree of centralization and the regional cost shares of centrally decided policies. We show that the resulting degree of centralization is suboptimally low. Voters strategically delegate to representatives who are averse to public spending and hence prefer decentralized decisions in order to reduce their region’s cost share. When spill-overs are asymmetric, strategic delegation is stronger at the periphery than at the center.

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Publisher Info
Paper provided by Center for European, Governance and Economic Development Research, University of Goettingen (Germany). in its series Center for European, Governance and Economic Development Research (cege) Discussion Papers with number 25.

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Length: 27
Date of creation: 09 Jun 2004
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Handle: RePEc:got:cegedp:25

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Related research
Keywords: Political Economy Fiscal Federalism Endogenous Centralization Constitutional Design

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Find related papers by JEL classification:
H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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  2. Gian Maria Milesi-Ferretti & Roberto Perotti & Massimo Rostagno, 2002. "Electoral Systems And Public Spending," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 609-657, May. [Downloadable!] (restricted)
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  3. 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. [Downloadable!]
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  4. 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. [Downloadable!] (restricted)
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  6. Redoano, Michela & Scharf, Kimberley Ann, 2002. "The Political Economy of Policy Centralization: Direct Versus Representative Democracy," CEPR Discussion Papers 3631, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  7. Lockwood, Ben, 2002. "Distributive Politics and the Costs of Centralization," Review of Economic Studies, Blackwell Publishing, vol. 69(2), pages 313-37, April.
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  8. Osborne, Martin J & Slivinski, Al, 1996. "A Model of Political Competition with Citizen-Candidates," The Quarterly Journal of Economics, MIT Press, vol. 111(1), pages 65-96, February. [Downloadable!] (restricted)
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  9. Bolton, Patrick & Roland, Gerard & Spolaore, Enrico, 1996. "Economic theories of the break-up and integration of nations," European Economic Review, Elsevier, vol. 40(3-5), pages 697-705, April. [Downloadable!] (restricted)
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  11. 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.
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  12. Alesina, Alberto F & Angeloni, Ignazio & Etro, Federico, 2001. "The Political Economy of International Unions," CEPR Discussion Papers 3117, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  13. Besley, Timothy & Coate, Stephen, 1997. "An Economic Model of Representative Democracy," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 85-114, February.
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  14. Chari, V V & Jones, Larry E & Marimon, Ramon, 1997. "The Economics of Split-Ticket Voting in Representative Democracies," American Economic Review, American Economic Association, vol. 87(5), pages 957-76, December. [Downloadable!] (restricted)
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  1. Giovanni Facchini & Oliver Lorz ( RWTH Aachen University) & Gerald Willmann, . "Asylum Seekers in Europe: The Warm Glow of a Hot Potato," Development Working Papers 205, Centro Studi Luca d\'Agliano, University of Milano. [Downloadable!]
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