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Endogenous public sector budgeting: to centralize or not?

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  • Gervan Fearon

Abstract

In this paper the impact of budget size on a government's choice to centralize or decentralize the budgetary process is investigated using asymmetric information, differing preferences, and endogenous budgetary arrangements. The central government chooses between a budgetary process that excludes the regional board (centralization) and one that includes the board (decentralization) in the determination of program budget levels. It is predicted that the central government will decentralize the budgetary process at low and centralize at high overall budget levels. Switching from decentralization to centralization is predicted to result in a reduction in the budget allocated to the regional board. JEL Classification: H3, C7 Processus budgétaire endogène dans le secteur public: faut‐il centraliser ou non? Ce mémoire analyse l'impact de la taille du budget sur le choix par un gouvernement de centraliser ou non son processus budgétaire. On met en évidence l'information asymétrique, les préférences différentes, et les arrangements budgétaires endogènes. Le gouvernement central choisit entre un processus budgétaire qui exclut le conseil régional (centralisation) et un autre qui l'inclut (décentralisation) dans la détermination des niveaux de budgets pour les programmes. On montre que le gouvernement central va décentraliser le processus budgétaire quand les niveaux de budget sont bas, et centraliser à des niveaux de budget plus élevés. Un déplacement de la décentralisation vers la centralisation résulte en une réduction du budget alloué au conseil régional.

Suggested Citation

  • Gervan Fearon, 2001. "Endogenous public sector budgeting: to centralize or not?," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 34(2), pages 504-524, May.
    • Handle: RePEc:wly:canjec:v:34:y:2001:i:2:p:504-524
    DOI: 10.1111/0008-4085.00086
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    Cited by:

    1. Gervan Fearon, 2009. "Economics of public good provision: auditing, outsourcing, and bribery," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 42(3), pages 997-1022, August.

    More about this item

    JEL classification:

    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory

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