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Decentralisation in Africa and the Nature of Local Governments' Competition: Evidence from Benin

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  • Emilie Caldeira
  • Martial Foucault
  • Grégoire Rota-Graziosi

Abstract

Decentralization has been put forward as a powerful tool to reduce poverty and improve governance in Africa. The aim of this paper is to study the existence, and identify the nature, of spillovers resulting from local expenditure policies. These spillovers impact the efficiency of decentralization. We develop a two-jurisdiction model of public expenditure, which differs from existing literature by capturing the extreme poverty of some local governments in developing countries through a generalized notion of the Nash equilibrium, namely, the constrained Nash equilibrium. We show how and under which conditions spillovers among jurisdictions induce strategic behaviours from local officials. By estimating a spatial lag model for a panel data analysis of the 77 communes in Benin from 2002 to 2008, our empirical analysis establishes the existence of the strategic complementarity of jurisdictions' public spending. Thus, any increase in the local public provision in one jurisdiction should induce a similar variation among the neighbouring jurisdictions. This result raises the issue of coordination among local governments, and more broadly, it questions the effeciency of decentralisation in developing countries in line with Oates' theorem.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18126.

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Date of creation: Jun 2012
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Handle: RePEc:nbr:nberwo:18126

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  1. Dixit, Avinash K, 1986. "Comparative Statics for Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 107-22, February.
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  14. Ben Lockwood & Giuseppe Migali, 2009. "Did The Single Market Cause Competition in Excise Taxes? Evidence From EU Countries," Economic Journal, Royal Economic Society, vol. 119(536), pages 406-429, 03.
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Cited by:
  1. Emilie Caldeira & Martial Foucault & Grégoire Rota-Graziosi, 2012. "Does Decentralization Facilitate Access to Poverty-Related Services? Evidence from Benin," NBER Working Papers 18118, National Bureau of Economic Research, Inc.

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