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To Fragment or to Consolidate Jurisdictions: the Optimal Architecture of Government

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  • Baleiras, Rui Nuno

Abstract

Fiscal decentralisation is a hot issue worldwide. Within the European Union, there are even opposing tendencies with respect to the assignment of responsibilities between government tiers. This is a textbook paper aiming to provide a pedagogic introduction to the economics of government formation. Government size and district boundaries are endogenously set. Through a unified diagrammatic framework, the paper stresses the impact many politico-economic factors are likely to exert upon those endogenous variables. The list includes heterogeneity in demand for and supply of local public goods, cost sharing, scale economies, interjurisdictional spillovers, mobility of consumer-voters, congestion degrees, governance costs, and second-best finance. The analysis thus provides a foundation for a vertical system of multifunction governments very much in the pioneering spirit of Mancur Olson and Wallace Oates.

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File URL: http://fesrvsd.fe.unl.pt/WPFEUNL/WP2001/wp401.pdf
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Bibliographic Info

Paper provided by Universidade Nova de Lisboa, Faculdade de Economia in its series FEUNL Working Paper Series with number wp401.

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Length: 32 pages
Date of creation: 2001
Date of revision:
Handle: RePEc:unl:unlfep:wp401

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Related research

Keywords: fiscal federalism; clubs; government size; correspondence principle; governance costs;

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References

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  1. Hochman, Oded & Pines, David & Thisse, Jacques-François, 1994. "On the Optimal Structure of Local Governments," CEPR Discussion Papers 899, C.E.P.R. Discussion Papers.
  2. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
  3. Krueger, Anne O, 1974. "The Political Economy of the Rent-Seeking Society," American Economic Review, American Economic Association, vol. 64(3), pages 291-303, June.
  4. Pranab Bardhan and and Dilip Mookherjee., 1999. "Relative Capture of Local and Central Governments: An Essay in the Political Economy of Decentralization," Center for International and Development Economics Research (CIDER) Working Papers C99-109, University of California at Berkeley.
  5. Olson, Mancur, Jr, 1969. "The Principle of "Fiscal Equivalence": The Division of Responsibilities among Different Levels of Government," American Economic Review, American Economic Association, vol. 59(2), pages 479-87, May.
  6. Dougan, William R & Kenyon, Daphne A, 1988. "Pressure Groups and Public Expenditures: The Flypaper Effect Reconsidered," Economic Inquiry, Western Economic Association International, vol. 26(1), pages 159-70, January.
  7. James R. Baumgardner, 1993. "Tests of Median Voter and Political Support Maximization Models: the Case of Federal/State Welfare Programs," Public Finance Review, , vol. 21(1), pages 48-83, January.
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Cited by:
  1. Philippe K. Widmer & George Elias & Peter Zweifel, 2012. "Improving efficiency through consolidation of jurisdictions? Evidence from the cantons of Switzerland," ECON - Working Papers 085, Department of Economics - University of Zurich.
  2. Mototsugu Fukushige & Yingxin Shi, 2014. "Efficient Scale of Local Government in China: Quantile Regression Approach to County-Level Data," Discussion Papers in Economics and Business 14-15, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).

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