On Fiscal Federalism under Democracy
AbstractIn his seminal work on fiscal federalism, Oates (1972) addressed the socalled Decentralization Theorem, which states that, if such factors as scale economies and spillovers are left out of consideration, a decentralized system is always more efficient than a centralized system for the supply of local public goods. Based on his analytical framework, we contrarily show that a centralized system is at times more efficient than a decentralized system under a democratic decision rule (Proposition 2). The key to such a possibility is the interests of minorities that may be sacrificed in each lower district under decentralization. That is, when the majority adopts an extreme policy that is far from minorities' tastes in a lower district under decentralization, if instead a moderate policy which is closer to minorities' tastes were chosen under centralization, then the interests of minorities would be saved. As a result, centralization could attain higher social welfare than decentralization.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-313.
Length: 18 pages
Date of creation: Jan 2005
Date of revision:
Contact details of provider:
Postal: Hongo 7-3-1, Bunkyo-ku, Tokyo 113-0033
Web page: http://www.cirje.e.u-tokyo.ac.jp/index.html
More information through EDIRC
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Alesina, Alberto & Spolaore, Enrico, 1997.
"On the Number and Size of Nations,"
The Quarterly Journal of Economics,
MIT Press, vol. 112(4), pages 1027-56, November.
- Besley, Timothy J. & Coate, Stephen, 2000.
"Centralized versus Decentralized Provision of Local Public Goods: a Political Economy Analysis,"
CEPR Discussion Papers
2495, C.E.P.R. Discussion Papers.
- Timothy Besley & Stephen Coate, 1999. "Centralized versus Decentralized Provision of Local Public Goods: A Political Economy Analysis," NBER Working Papers 7084, National Bureau of Economic Research, Inc.
- Mikami, Kazuhiko, 1999. "Proxy contests and corporate democracy," Journal of Economic Behavior & Organization, Elsevier, vol. 40(4), pages 353-371, December.
- Ellingsen, Tore, 1998. "Externalities vs internalities: a model of political integration," Journal of Public Economics, Elsevier, vol. 68(2), pages 251-268, May.
- Nobuo Akai & Toshihiro Ihori, 2002. "Central government subsidies to local public goods," Economics of Governance, Springer, vol. 3(3), pages 227-239, November.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CIRJE administrative office).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.