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Voting, Lobbying and the Decentralization Theorem

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  • Ben Lockwood

Abstract

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.

Suggested Citation

  • Ben Lockwood, 2007. "Voting, Lobbying and the Decentralization Theorem," Economics Working Papers ECO2007/06, European University Institute.
  • Handle: RePEc:eui:euiwps:eco2007/06
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    Cited by:

    1. Raúl A. Ponce-Rodríguez & Charles R. Hankla & Jorge Martinez-Vazquez & Eunice Heredia-Ortiz, 2016. "Political institutions and federalism: a “strong” decentralization theorem," Working Papers. Collection A: Public economics, governance and decentralization 1604, Universidade de Vigo, GEN - Governance and Economics research Network.
    2. Jaume Ventura, 2019. "Sharing a government," Economics Working Papers 1664, Department of Economics and Business, Universitat Pompeu Fabra.
    3. Toke S. Aidt & Jayasri Dutta, 2017. "Fiscal Federalism and Electoral Accountability," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 19(1), pages 38-58, February.
    4. Roland Vaubel, 2013. "Secession in the European Union," Economic Affairs, Wiley Blackwell, vol. 33(3), pages 288-302, October.
    5. 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, June.
    6. Fabio Padovano, 2013. "Are we witnessing a paradigm shift in the analysis of political competition?," Public Choice, Springer, vol. 156(3), pages 631-651, September.
    7. Neyapti, Bilin & Bulut-Cevik, Zeynep Burcu, 2014. "Fiscal efficiency, redistribution and welfare," Economic Modelling, Elsevier, vol. 41(C), pages 375-382.
    8. Inga Hillesheim, 2012. "Relative consumption and majority voting: supplementing Oates’ “Decentralization Theorem”," Journal of Economics, Springer, vol. 105(1), pages 29-43, January.
    9. Jaume Ventura, 2019. "Sharing Government," Working Papers 1112, Barcelona Graduate School of Economics.
    10. Raúl A. Ponce-Rodríguez & Charles R. Hankla & Jorge Martinez-Vazquez & Eunice Heredia-Ortiz, 2020. "The politics of fiscal federalism: Building a stronger decentralization theorem," Journal of Theoretical Politics, , vol. 32(4), pages 605-639, October.
    11. Jaume Ventura, 2019. "Sharing a Government," NBER Working Papers 26141, National Bureau of Economic Research, Inc.
    12. Martin Gregor & Lenka Stastna, 2012. "The decentralization tradeoff for complementary spillovers," Review of Economic Design, Springer;Society for Economic Design, vol. 16(1), pages 41-69, March.
    13. Guillaume Cheikbossian, 2016. "The political economy of (De)centralization with complementary public goods," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 47(2), pages 315-348, August.
    14. Weingast, Barry R., 2014. "Second Generation Fiscal Federalism: Political Aspects of Decentralization and Economic Development," World Development, Elsevier, vol. 53(C), pages 14-25.
    15. Francis Bloch & Ünal Zenginobuz, 2015. "Oates’ decentralization theorem with imperfect household mobility," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(3), pages 353-375, June.
    16. Toke S. Aidt & Jayasri Dutta, 2017. "Fiscal Federalism and Electoral Accountability," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 19(1), pages 38-58, February.
    17. Raul A. Ponce-Rodriguez & Charles R. Hankla & Jorge Martinez-Vazquez & Eunice Heredia-Ortiz, 2016. "Political Institutions and Federalism: A "Strong" Decentralization Theorem," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1603, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    18. Ruta, Michele, 2009. "Political constraints to growth in an economic union," Journal of Public Economics, Elsevier, vol. 93(7-8), pages 989-997, August.
    19. Ventura, Jaume, 2019. "Sharing a Government," CEPR Discussion Papers 13893, C.E.P.R. Discussion Papers.

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    More about this item

    Keywords

    Decentralization; majority voting; lobbying; local public goods;
    All these keywords.

    JEL classification:

    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

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