Voting, Lobbying, and the Decentralization Theorem
This paper revisits the fiscal "decentralization theorem", by relaxing the role of the assumption that governments are benevolent, while retaining the assumption of policy uniformity. If instead, decisions are made by direct majority voting, (i) centralization can welfare-dominate decentralization even if there are no externalities and regions are heterogenous; (ii) decentralization can welfare-dominate centralization even if there are positive externalities and regions are homogenous. The intuition is that the insensitivity of majority voting to preference intensity interacts with the different inefficiencies in the two fiscal regimes to give second-best results. Similar results obtain when governments are benevolent, but subject to lobbying, because now decisions are too sensitive to the preferences of the organised group.
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- Alesina, Alberto F & Angeloni, Ignazio & Etro, Federico, 2001.
"The Political Economy of International Unions,"
CEPR Discussion Papers
3117, C.E.P.R. Discussion Papers.
- Alberto Alesina & Ignazio Angeloni & Federico Etro, 2001. "The Political Economy of International Unions," NBER Working Papers 8645, National Bureau of Economic Research, Inc.
- Alberto Alesina & Ignazio Angeloni & Federico Etro, 2001. "The Political Economy of International Unions," Harvard Institute of Economic Research Working Papers 1939, Harvard - Institute of Economic Research.
- Alberto Alesina & Enrico Spolaore, 1997.
"On the Number and Size of Nations,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 112(4), pages 1027-1056.
- Michela Redoano, 2010.
"Does Centralization Affect the Number and Size of Lobbies?,"
Journal of Public Economic Theory,
Association for Public Economic Theory, vol. 12(3), pages 407-435, 06.
- Redoano, Michela, 2003. "Does Centralisation Affect The Number And Size Of Lobbies?," The Warwick Economics Research Paper Series (TWERPS) 674, University of Warwick, Department of Economics.
- Michela Redoano, 2007. "Does Centralization Affect the Number and Size of Lobbies?," CESifo Working Paper Series 1968, CESifo Group Munich.
- Besley, Timothy & Coate, Stephen, 2003. "Centralized versus decentralized provision of local public goods: a political economy approach," Journal of Public Economics, Elsevier, vol. 87(12), pages 2611-2637, December.
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