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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. Ruben Enikolopov & Ekaterina Zhuravskaya, 2004. "Decentralization and Political Institutions," Economics Working Papers 0045, Institute for Advanced Study, School of Social Science.
    2. Neyapti, Bilin, 2006. "Revenue decentralization and income distribution," Economics Letters, Elsevier, vol. 92(3), pages 409-416, September.
    3. Andrés Rodríguez-Pose & Roberto Ezcurra, 2010. "Does decentralization matter for regional disparities? A cross-country analysis," Journal of Economic Geography, Oxford University Press, vol. 10(5), pages 619-644, September.
    4. Iwan Barankay & Ben Lockwood, 2005. "Decentralization and the Productive Efficiency of Government: Evidence from Swiss Cantons," Economics Discussion Papers 597, University of Essex, Department of Economics.
    5. Jütting, Johannes P. & Uchimura, Hiroko, 2007. "Fiscal Decentralization, Chinese Style: Good for Health Outcomes?," Proceedings of the German Development Economics Conference, Göttingen 2007 16, Verein für Socialpolitik, Research Committee Development Economics.
    6. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
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    8. 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.
    9. Stefan Voigt & Lorenz Blume, 2012. "The economic effects of federalism and decentralization—a cross-country assessment," Public Choice, Springer, vol. 151(1), pages 229-254, April.
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    11. Martinez-Vazquez, Jorge & McNab, Robert M., 2003. "Fiscal Decentralization and Economic Growth," World Development, Elsevier, vol. 31(9), pages 1597-1616, September.
    12. 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.
    13. 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.
    14. Jaime Bonet, 2006. "Fiscal decentralization and regional income disparities: evidence from the Colombian experience," The Annals of Regional Science, Springer, vol. 40(3), pages 661-676, August.
    15. Arzaghi, Mohammad & Henderson, J. Vernon, 2005. "Why countries are fiscally decentralizing," Journal of Public Economics, Elsevier, vol. 89(7), pages 1157-1189, July.
    16. 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.
    17. Ben Lockwood, 2006. "The Political Economy of Decentralization," Chapters, in: Handbook of Fiscal Federalism, chapter 1 Edward Elgar.
    18. 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.
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