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Fiscal Decentralization in Specific Areas of Government. A Technical Note

  • Leonardo Letelier S.

    ()

    (Senior Lecturer, Institute of Public Affairs, University of Chile. Santiago de Chile.)

  • José Luis Sáez Lozano

    ()

    (Associate Professor, Department of International and Spain’s Economics (tenured), University of Granada. Granada, Spain.)

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    This study makes a contribution in two basic areas. First, it sets up a model which combines efficiency as well as political economy aspects in explaining the degree of fiscal decentralization. It innovates in making explicit the benefits from better informed politicians and policy makers (Von Hayek effect) and the potential cost push effect on public services and public goods (Scale Effect) resulting from decentralization. It takes advantage of previous literature in recognizing the extent of the ideological distance between the local and the national median voter as a third factor worth considering in the social cost benefit analysis of decentralization. Second, the aforementioned effects are put into the context of specific functional areas of government, each of them having a particular set of characteristics which lead to a different degree of decentralization. The net outcome will be the result of combining the rent seeking orientation of the central government with the particular median voter demand for each different public good.

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    File URL: http://www.economiamexicana.cide.edu/num_anteriores/XXII-2/05-EM_Leonardo_Letelier.pdf
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    Article provided by in its journal Economia Mexicana NUEVA EPOCA.

    Volume (Year): XXII (2013)
    Issue (Month): 2 (July-December)
    Pages: 357-373

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    Handle: RePEc:emc:ecomex:v:22:y:2013:i:2:p:357-373
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    1. Barankay, Iwan & Lockwood, Ben, 2006. "Decentralization and the Productive Efficiency of Government: Evidence from Swiss Cantons," CEPR Discussion Papers 5639, C.E.P.R. Discussion Papers.
    2. Arzaghi, Mohammad & Henderson, J. Vernon, 2005. "Why countries are fiscally decentralizing," Journal of Public Economics, Elsevier, vol. 89(7), pages 1157-1189, July.
    3. Martinez-Vazquez, Jorge & McNab, Robert M., 2003. "Fiscal Decentralization and Economic Growth," World Development, Elsevier, vol. 31(9), pages 1597-1616, September.
    4. Pranab Bardhan & Dilip Mookherjee, 2003. "Pro-Poor Targeting and Accountability of Local Governments in West Bengal," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-138, Boston University - Department of Economics.
    5. Stefan Voigt & Lorenz Blume, 2009. "The Economic Effects of Federalism and Decentralization - A Cross-Country Assessment," CESifo Working Paper Series 2766, CESifo Group Munich.
    6. Lindaman, Kara & Thurmaier, Kurt, 2002. "Beyond Efficiency and Economy: An Examination of Basic Needs and Fiscal Decentralization," Economic Development and Cultural Change, University of Chicago Press, vol. 50(4), pages 915-34, July.
    7. Hiroko Uchimura & Johannes P. Jütting, 2007. "Fiscal Decentralisation, Chinese Style: Good for Health Outcomes?," OECD Development Centre Working Papers 264, OECD Publishing.
    8. Charles R. Hankla, 2009. "When is Fiscal Decentralization Good for Governance?," Publius: The Journal of Federalism, Oxford University Press, vol. 39(4), pages 632-650, Fall.
    9. Enikolopov, Ruben & Zhuravskaya, Ekaterina, 2007. "Decentralization and political institutions," Journal of Public Economics, Elsevier, vol. 91(11-12), pages 2261-2290, December.
    10. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
    11. Roberto Ezcurra & Andrés Rodríguez-Pose, 2009. "Does decentralization matter for regional disparities? A cross-country analysis," LSE Research Online Documents on Economics 33244, London School of Economics and Political Science, LSE Library.
    12. Neyapti, Bilin, 2006. "Revenue decentralization and income distribution," Economics Letters, Elsevier, vol. 92(3), pages 409-416, September.
    13. Jaime Bonet, 2006. "Fiscal decentralization and regional income disparities: evidence from the Colombian experience," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 40(3), pages 661-676, August.
    14. John Joseph Wallis & Wallace E. Oates, 1988. "Decentralization in the Public Sector: An Empirical Study of State and Local Government," NBER Chapters, in: Fiscal Federalism: Quantitative Studies, pages 5-32 National Bureau of Economic Research, Inc.
    15. Kyriacou, Andreas P. & Roca-Sagalés, Oriol, 2011. "Fiscal decentralization and government quality in the OECD," Economics Letters, Elsevier, vol. 111(3), pages 191-193, June.
    16. Panizza, Ugo, 1999. "On the determinants of fiscal centralization: Theory and evidence," Journal of Public Economics, Elsevier, vol. 74(1), pages 97-139, October.
    17. Qiao, Baoyun & Martinez-Vazquez, Jorge & Xu, Yongsheng, 2008. "The tradeoff between growth and equity in decentralization policy: China's experience," Journal of Development Economics, Elsevier, vol. 86(1), pages 112-128, April.
    18. Ben Lockwood, 2006. "The Political Economy of Decentralization," Chapters, in: Handbook of Fiscal Federalism, chapter 1 Edward Elgar Publishing.
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