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Fiscal Federalism and Electoral Accountability

  • Aidt, T.
  • Dutta, J.

We study the e¢ cient allocation of spending and taxation authority in a federation in which federal politicians are exposed to electoral uncertainty. We show that centralization may, but need not, result in a loss of electoral accountability. We identify an important asymmetry between positive and negative externalities and show that centralization may not be e¢ cient in economies with positive externalities even when regions are identical and centralization does not entail a loss of accountability. We also show that decentralization can only Pareto dominate centralization in economies with negative externalities.

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File URL: http://www.econ.cam.ac.uk/research/repec/cam/pdf/cwpe1021.pdf
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Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 1021.

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Date of creation: 30 Apr 2010
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Handle: RePEc:cam:camdae:1021
Contact details of provider: Web page: http://www.econ.cam.ac.uk/index.htm

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  19. Christoph Lülfesmann, 2000. "Central Governance or Subsidiarity: A Property-Rights Approach to Federalism," Bonn Econ Discussion Papers bgse5_2001, University of Bonn, Germany.
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