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Decentralized Budgeting Procedures for Public Expenditure

Author

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  • Rosella Levaggi

    (University of Brescia, Italy)

Abstract

This article discusses the allocation of public expenditure among competing services. Some countries such as Italy use a double budget constraint; that is, the top level sets total expenditure and its allocation between competing services, whereas other countries just define the total budget. The article examines different ways in which the relationship between the agencies involved is structured and shows that the choice among competing systems depends on the objectives pursued by the agents involved and on the information structure. The analysis shows that tighter budget rules such as those implied by a double budget constraint might be optimal; that is, autonomy in decentralization is not always the best alternative. A second interesting conclusion is that a functional decentralization might enable Central Government to extract the information rent its agents command, but in this case the incentive structure must avoid collusion among the actors involved.

Suggested Citation

  • Rosella Levaggi, 2002. "Decentralized Budgeting Procedures for Public Expenditure," Public Finance Review, , vol. 30(4), pages 273-295, July.
    • Handle: RePEc:sae:pubfin:v:30:y:2002:i:4:p:273-295
    DOI: 10.1177/109421030004002
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    References listed on IDEAS

    as
    1. Levaggi, Rosella & Smith, Peter, 1994. "On the Intergovernmental Fiscal Game," Public Finance = Finances publiques, , vol. 49(1), pages 72-86.
    2. Grossman, Herschel I., 1969. "Theories of markets without recontracting," Journal of Economic Theory, Elsevier, vol. 1(4), pages 476-479, December.
    3. Harris Milton & Townsend, Robert M, 1981. "Resource Allocation under Asymmetric Information," Econometrica, Econometric Society, vol. 49(1), pages 33-64, January.
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    Cited by:

    1. Özgür Kıbrıs & İpek Tapkı, 2014. "A mechanism design approach to allocating central government funds among regional development agencies," Review of Economic Design, Springer;Society for Economic Design, vol. 18(3), pages 163-189, September.
    2. Prakash Chandra Jha, 2015. "Theory of fiscal federalism: an analysis," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 17(2), pages 241-259, October.
    3. Rosella Levaggi, 2008. "Decentralisation vs fiscal federalism in the presence of impure public goods," Working Papers 0812, University of Brescia, Department of Economics.
    4. Carmen Marchiori & Susan Sayre & Leo Simon, 2012. "Bargaining and Devolution in the Upper Guadiana Basin," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 51(3), pages 453-470, March.
    5. Wallace Oates, 2005. "Toward A Second-Generation Theory of Fiscal Federalism," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 12(4), pages 349-373, August.
    6. T. V. Sumskaya, 2024. "Analysis of Federal Transfer Policy in Russia," Studies on Russian Economic Development, Springer, vol. 35(5), pages 733-744, October.

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