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The Theory of Administrative Federalism: An Alternative to Fiscal Centralization and Decentralization

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  • Robert Schwager

    (Otto-von-Guericke-Universität)

Abstract

Under administrative federalism, the central state sets quality standards for public projects and the local jurisdictions decide which projects are carried out. Decentralized decisions suffer from an interjurisdictional spillover. The central state cannot distinguish between useful and useless projects. It is shown that administrative federalism is always preferable to decentralization. This is due to the distinction between the net benefit of increasing the quality level for all projects and the net benefit of carrying out an additional project. If the information problem is sufficiently important, administrative federalism also is preferable to centralization. Finally, it may even implement the first best solution.

Suggested Citation

  • Robert Schwager, 1999. "The Theory of Administrative Federalism: An Alternative to Fiscal Centralization and Decentralization," Public Finance Review, , vol. 27(3), pages 282-309, May.
  • Handle: RePEc:sae:pubfin:v:27:y:1999:i:3:p:282-309
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    Cited by:

    1. Thiess Büttner & Petra Enß & Fédéric Holm-Hadulla & Robert Schwager & Christiane Starbatty & Wiebke Webering, 2009. "Der kommunale Finanzausgleich in Mecklenburg-Vorpommern : langfristige Entwicklung und Reformperspektiven ; Teil II: Der horizontale Finanzausgleich ; Gutachten im Auftrag des Innenministeriums des La," ifo Forschungsberichte, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 46.

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