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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- 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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NBER Working Papers
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- Michela Redoano, 2010.
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- Michela Redoano, 2007. "Does Centralization Affect the Number and Size of Lobbies?," CESifo Working Paper Series 1968, CESifo Group Munich.
- 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.
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