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Spending Growth With Vertical Fiscal Imbalance: Decentralized Government Spending In Norway, 1880-1990

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  • Lars-Erik Borge
  • Jørn Rattsø

Abstract

Vertical fiscal imbalance, decentralized responsibility of spending with centralized financing, creates a common pool problem with spending pressure towards central funds. A model of decentralized government spending under vertical fiscal imbalance is developed, and the importance of national political characteristics for internalization of costs and spending level is investigated in an econometric analysis of Norway during 1880-1990. We argue that in a parliamentary democracy, the internalization of costs is influenced by the party fragmentation of parliament. This is confirmed by the econometric analysis using a Herfindahl index as a measure of fragmentation and political strength. Copyright Blackwell Publishers Ltd 2002.

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  • Lars-Erik Borge & Jørn Rattsø, 2002. "Spending Growth With Vertical Fiscal Imbalance: Decentralized Government Spending In Norway, 1880-1990," Economics and Politics, Wiley Blackwell, vol. 14(3), pages 351-373, November.
  • Handle: RePEc:bla:ecopol:v:14:y:2002:i:3:p:351-373
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    References listed on IDEAS

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    1. Borge, Lars-Erik & Rattso, Jorn, 1995. "Demographic shift, relative costs and the allocation of local public consumption in Norway," Regional Science and Urban Economics, Elsevier, vol. 25(6), pages 705-726, December.
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    7. von Hagen, Jurgen & Harden, Ian J., 1995. "Budget processes and commitment to fiscal discipline," European Economic Review, Elsevier, vol. 39(3-4), pages 771-779, April.
    8. Poterba, James M, 1994. "State Responses to Fiscal Crises: The Effects of Budgetary Institutions and Politics," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 799-821, August.
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    11. Alberto Alesina & Roberto Perotti, 1995. "The Political Economy of Budget Deficits," IMF Staff Papers, Palgrave Macmillan, vol. 42(1), pages 1-31, March.
    12. Oxley, Les, 1994. "Cointegration, Causality and Wagner's Law: A Test for Britain 1870-1913," Scottish Journal of Political Economy, Scottish Economic Society, vol. 41(3), pages 286-298, August.
    13. Borcherding, Thomas E., 1985. "The causes of government expenditure growth: A survey of the U.S. evidence," Journal of Public Economics, Elsevier, vol. 28(3), pages 359-382, December.
    14. Inman, Robert P & Fitts, Michael A, 1990. "Political Institutions and Fiscal Policy: Evidence from the U.S. Historical Record," Journal of Law, Economics, and Organization, Oxford University Press, vol. 6(0), pages 79-132.
    15. Borge, Lars-Erik & Rattso, Jorn, 1997. "Local Government Grants and Income Tax Revenue: Redistributive Politics in Norway 1900-1990," Public Choice, Springer, vol. 92(1-2), pages 181-197, July.
    16. Weingast, Barry R & Shepsle, Kenneth A & Johnsen, Christopher, 1981. "The Political Economy of Benefits and Costs: A Neoclassical Approach to Distributive Politics," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 642-664, August.
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    Cited by:

    1. Rodden, Jonathan, 2003. "Reviving Leviathan: Fiscal Federalism and the Growth of Government," International Organization, Cambridge University Press, vol. 57(04), pages 695-729, September.
    2. Edoardo Di Porto & Angela Parenti & Sonia Paty & Zineb Abidi, 2017. "Local government cooperation at work: a control function approach," Journal of Economic Geography, Oxford University Press, vol. 17(2), pages 435-463.
    3. John Ashworth & Bruno Heyndels, 2005. "Government Fragmentation And Budgetary Policy In "Good" And "Bad" Times In Flemish Municipalities," Economics and Politics, Wiley Blackwell, vol. 17, pages 245-263, July.
    4. Borge, Lars-Erik & Brueckner, Jan K. & Rattsø, Jorn, 2014. "Partial fiscal decentralization and demand responsiveness of the local public sector: Theory and evidence from Norway," Journal of Urban Economics, Elsevier, vol. 80(C), pages 153-163.
    5. Lars-Erik Borge & Jan K. Brueckner & Jorn Rattso, 2012. "Partial Fiscal Decentralization and Public-Sector Heterogeneity: Theory and Evidence from Norway," CESifo Working Paper Series 3954, CESifo Group Munich.

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