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Information Transmission within Federal Fiscal Architectures: Theory and Evidence

Author

Listed:
  • Axel Dreher

    () (Heidelberg University)

  • Kai Gehring

    () (University of Göttingen)

  • Christos Kotsogiannis

    () (University of Exeter)

  • Silvia Marchesi

    () (University of Milan Bicocca and Centro Studi Luca d’Agliano)

Abstract

This paper explores the role of information transmission and misaligned interests across levels of government in explaining variation in the degree of decentralization across countries. Within a two-sided incomplete information principal-agent framework, it analyzes two alternative policy-decision schemes –‘decentralization’ and ‘centralization’– when ‘knowledge’ consists of unverifiable information and the quality of communication depends on the conflict of interests between the government levels. It is shown that, depending on which level of policy decision-making controls the degree of decentralization, the extent of misaligned interests and the relative importance of local and central government knowledge affects the optimal choice of policy-decision schemes. The empirical analysis shows that countries’ choices depend on the relative importance of their private information and the results differ significantly between unitary and federal countries.

Suggested Citation

  • Axel Dreher & Kai Gehring & Christos Kotsogiannis & Silvia Marchesi, 2013. "Information Transmission within Federal Fiscal Architectures: Theory and Evidence," Development Working Papers 355, Centro Studi Luca d'Agliano, University of Milano.
  • Handle: RePEc:csl:devewp:355
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    References listed on IDEAS

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    Cited by:

    1. Axel Dreher & Sarah Langlotz & Silvia Marchesi, 2017. "Information Transmission And Ownership Consolidation In Aid Programs," Economic Inquiry, Western Economic Association International, vol. 55(4), pages 1671-1688, October.

    More about this item

    Keywords

    delegation; centralization; communication; fiscal decentralization; state and local government;

    JEL classification:

    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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