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Fiscal Federalism and Electoral Accountability

  • Toke Aidt
  • Jayasri Dutta

We study the efficient 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 efficient 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.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2010/wp-cesifo-2010-04/cesifo1_wp3022.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3022.

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Date of creation: 2010
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Handle: RePEc:ces:ceswps:_3022
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  10. Dixit, Avinash & Londregan, John, 1998. "Fiscal federalism and redistributive politics," Journal of Public Economics, Elsevier, vol. 68(2), pages 153-180, May.
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  19. 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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