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On the endogenous allocation of decision powers in federal structures

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  • Willmann, Gerald
  • Lorz, Oliver

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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Bibliographic Info

Paper provided by Katholieke Universiteit Leuven in its series Open Access publications from Katholieke Universiteit Leuven with number urn:hdl:123456789/165789.

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Date of creation: 2005
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Publication status: Published in Journal of Urban Economics (2005) v.57, p.242-257
Handle: RePEc:ner:leuven:urn:hdl:123456789/165789

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Web page: http://www.kuleuven.be

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  1. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
  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.
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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.
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  10. Panizza, Ugo, 1999. "On the determinants of fiscal centralization: Theory and evidence," Journal of Public Economics, Elsevier, vol. 74(1), pages 97-139, October.
  11. Rubinfeld, Daniel L., 1987. "The economics of the local public sector," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 11, pages 571-645 Elsevier.
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  13. Sergiu Hart & Andreu Mas-Colell, 1994. "Bargaining and value," Economics Working Papers 114, Department of Economics and Business, Universitat Pompeu Fabra, revised Feb 1995.
  14. Tim Besley & Stephen Coate, . ""An Economic Model of Representative Democracy''," CARESS Working Papres 95-02, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  15. 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.
  16. Jan K. Brueckner, 2004. "Fiscal Decentralization with Distortionary Taxation: Tiebout vs. Tax Competition," International Tax and Public Finance, Springer, vol. 11(2), pages 133-153, 03.
  17. Bolton, Patrick & Roland, Gerard, 1997. "The Breakup of Nations: A Political Economy Analysis," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1057-90, November.
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Citations

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Cited by:
  1. Jan K. Brueckner, 2007. "Partial Fiscal Decentralization," Working Papers 070804, University of California-Irvine, Department of Economics.
  2. Giovanni Facchini & Oliver Lorz & Gerald Willmann, 2006. "Asylum seekers in Europe: the warm glow of a hot potato," Journal of Population Economics, Springer, vol. 19(2), pages 411-430, June.
  3. Jan Schnellenbach & Lars Feld & Christoph schaltegger, 2007. "The Impact of Referendums on the Centralisation of Public Goods Provision: A Political Economy Approach," Working Papers 0440, University of Heidelberg, Department of Economics, revised May 2007.
  4. Cheikbossian, Guillaume, 2008. "Rent-seeking, Spillovers and the Benefits of Decentralization," Open Access publications from University of Toulouse 1 Capitole http://neeo.univ-tlse1.fr, University of Toulouse 1 Capitole.
  5. Federico Etro, 2006. "Political geography," Public Choice, Springer, vol. 127(3), pages 321-343, June.
  6. Feng Xie & David Levinson, 2009. "Governance choice on a serial network," Public Choice, Springer, vol. 141(1), pages 189-212, October.
  7. Federico Etro, 2004. "The Political Economy of Fiscal and Monetary Unions," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 63(3-4), pages 289-328, December.
  8. Libman, Alexander Mikhailovich, 2009. "Эндогенные Границы И Распределение Власти В Федерациях И Международных Сообществах
    [ENDOGENOUS BOUNDARIES AND DISTRIBUTION O    ," MPRA Paper 16473, University Library of Munich, Germany.
  9. Lorz, Oliver & Willmann, Gerald, 2008. "Enlargement versus deepening: the trade-off facing economic unions," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/311222, Katholieke Universiteit Leuven.
  10. Janos Feidler & Klaas Staal, 2012. "Centralized and decentralized provision of public goods," Economics of Governance, Springer, vol. 13(1), pages 73-93, March.
  11. Lisa Grazzini & Alessandro Petretto, 2013. "Federalism with Bicameralism," Working Papers Series wp2013_01.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze dell'Economia e Dell'Impresa.
  12. Barbara Dluhosch & Nikolai Ziegler, 2011. "The paradox of weakness in the politics of trade integration," Constitutional Political Economy, Springer, vol. 22(4), pages 325-354, December.
  13. Feld, Lars P. & Schaltegger, Christoph A. & Schnellenbach, Jan, 2008. "On government centralization and fiscal referendums," European Economic Review, Elsevier, vol. 52(4), pages 611-645, May.
  14. Janeba, Eckhard & Wilson, John Douglas, 2011. "Optimal fiscal federalism in the presence of tax competition," Journal of Public Economics, Elsevier, vol. 95(11), pages 1302-1311.

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