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

  • Lars-Erik Borge
  • Jørn Rattsø

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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Article provided by Wiley Blackwell in its journal Economics and Politics.

Volume (Year): 14 (2002)
Issue (Month): 3 (November)
Pages: 351-373

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Handle: RePEc:bla:ecopol:v:14:y:2002:i:3:p:351-373
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  1. 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 286-98, August.
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  8. International Monetary Fund, 1996. "Budget Processes and Commitment to Fiscal Discipline," IMF Working Papers 96/78, International Monetary Fund.
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