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Distributive Politics and the Costs of Centralization

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  • Ben Lockwood

Abstract

This paper studies the choice between centralization and decentralization of fiscal policy in a political economy setting. With centralization, regional delegates vote over agendas comprising sets of region-specific projects. The outcome is inefficient because the choice of projects is insufficiently sensitive to within-region benefits. The number of projects funded may be non-monotonic in the strength of project externalities. The efficiency gains from decentralization, and the performance of “constitutional rules” (such as majority voting) which may be used to choose between decentralization and centralization, are then discussed in this framework. Weaker externalities and more heterogeneity between regions need not increase the efficiency gain from decentralization. Copyright 2002, Wiley-Blackwell.

Suggested Citation

  • Ben Lockwood, 2002. "Distributive Politics and the Costs of Centralization," Review of Economic Studies, Oxford University Press, vol. 69(2), pages 313-337.
  • Handle: RePEc:oup:restud:v:69:y:2002:i:2:p:313-337
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    File URL: http://hdl.handle.net/10.1111/1467-937X.00207
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    References listed on IDEAS

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    JEL classification:

    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

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