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Fiscal federalism and electoral accountability

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  • Toke S. Aidt

    ()
    (University of Cambridge)

  • Jayasri Dutta

    ()
    (University of Birmingham)

Abstract

We study the efficient allocation of spending and taxation authority in a federation in which federal politicians are exposed to electoral uncertainty. We show that centralization may, but need not, result in a loss of electoral accountability. We identify an important asymmetry between positive and negative externalities and show that centralization may not be efficient in economies with positive externalities even when regions are identical and centralization does not entail a loss of accountability. We also show that decentralization can only Pareto dominate centralization in economies with negative externalities.

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Bibliographic Info

Paper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2010/11.

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Length: 53 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:ieb:wpaper:2010/4/doc2010-11

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Keywords: Fiscal federalism; local public goods; externalities; performance voting; turnout uncertainty; electoral accountability;

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  1. Crémer, Jacques & Palfrey, Thomas, 2000. "Federal Mandates by Popular Demand," IDEI Working Papers 120, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2001.
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  20. Lockwood, Ben, 2002. "Distributive Politics and the Costs of Centralization," Review of Economic Studies, Wiley Blackwell, vol. 69(2), pages 313-37, April.
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  23. Kessler, Anke & Luelfesmann, Christoph & Myers, Gordon M, 2009. "The Architecture of Federations: Constitutions, Bargaining, and Moral Hazard," CEPR Discussion Papers 7244, C.E.P.R. Discussion Papers.
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  25. Mariano Tommasi & Federico Weinschelbaum, 2007. "Centralization vs. Decentralization: A Principal-Agent Analysis," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(2), pages 369-389, 04.
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