This paper takes a fresh look at the trade-off between centralized and decentralized provision of local public goods. The point of departure is to model a centralized system as one in which public spending is financed by general taxation, but districts can receive different levels of local public goods. In a world of benevolent governments, the disadvantages of centralization stressed in the existing literature disappear, suggesting that the case for decentralization must be driven by political economy considerations. Our political economy analysis assumes that under decentralization public goods are selected by locally elected representatives, while under a centralized system policy choices are determined by a legislature consisting of elected representatives from each district. We then study the role of taste heterogeneity, spillovers and legislative behavior in determining the case for centralization.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
7084.
Length: Date of creation: Apr 1999 Date of revision: Handle: RePEc:nbr:nberwo:7084
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Find related papers by JEL classification: H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures D60 - Microeconomics - - Welfare Economics - - - General
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