Federations, Constitutions, and Political Bargaining
AbstractThe paper studies a world where a region provides essential inputs for the successful implementation of a local public policy project with spill-overs, and where bargaining between different levels of government may ensure efficient decision making ex post. We ask whether the authority over the public policy measure should rest with the local government or be centralized, allowing financial relationships within the federation to be designed optimally. We show that centralization is always dominant when governments are benevolent, and that both governance structures are otherwise inefficient as long as political bargaining is disregarded. With bargaining, however, the first best can often be achieved under decentralization, but not under centralization. At the root of the result is the alignment of decision making over both essential inputs and final project size under decentralization.
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Bibliographic InfoPaper provided by Department of Economics, Simon Fraser University in its series Discussion Papers with number dp07-19.
Date of creation: Oct 2007
Date of revision:
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Postal: Department of Economics, Simon Fraser University, 8888 University Drive, Burnaby, BC, V5A 1S6, Canada
Web page: http://www.sfu.ca/economics.html
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Postal: Working Paper Coordinator, Department of Economics, Simon Fraser University, 8888 University Drive, Burnaby, BC, V5A 1S6, Canada
Find related papers by JEL classification:
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-12-01 (All new papers)
- NEP-CDM-2007-12-01 (Collective Decision-Making)
- NEP-LAW-2007-12-01 (Law & Economics)
- NEP-PBE-2007-12-01 (Public Economics)
- NEP-POL-2007-12-01 (Positive Political Economics)
- NEP-PPM-2007-12-01 (Project, Program & Portfolio Management)
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- Petra Ens, 2009. "Tax competition and equalization: the impact of voluntary cooperation on the efficiency goal," Working Papers 2009/16, Institut d'Economia de Barcelona (IEB).
- Kessler, Anke, 2010. "Communication in Federal Politics: Universalism, Policy Uniformity, and the Optimal Allocation of Fiscal Authority," CEPR Discussion Papers 7910, C.E.P.R. Discussion Papers.
- Federico Etro, 2006. "Political geography," Public Choice, Springer, vol. 127(3), pages 321-343, June.
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