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Decentralizing Development: The Economic Impacts of Government Splits

Author

Listed:
  • Ricardo Dahis
  • Christiane Szerman

Abstract

Changes in political boundaries aimed at devolving power to local governments are common across many countries. We examine the economic impacts of government unit creation through splitting. Exploiting reforms that led to sharp increases in the number of municipalities in Brazil, we show that voluntary splitting enlarges the public sector, enhances public service delivery, and stimulates long-term economic activity in new local governments. These gains are not offset by losses elsewhere and are stronger in peripheral, remote, and underdeveloped areas neglected by parent governments. Higher fiscal revenues and decentralized decision-making contribute to the positive effects on local economic activity.

Suggested Citation

  • Ricardo Dahis & Christiane Szerman, 2026. "Decentralizing Development: The Economic Impacts of Government Splits," American Economic Journal: Applied Economics, American Economic Association, vol. 18(3), pages 220-253, July.
    • Handle: RePEc:aea:aejapp:v:18:y:2026:i:3:p:220-53
    DOI: 10.1257/app.20240009
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    More about this item

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
    • H76 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Other Expenditure Categories
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

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