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Fiscal federalism and electoral accountability

  • Toke S. Aidt

    ()

    (University of Cambridge)

  • Jayasri Dutta

    ()

    (University of Birmingham)

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://ieb.ub.edu/aplicacio/fitxers/2010/4/Doc2010-11.pdf
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Paper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2010/11.

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Length: 53 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:ieb:wpaper:2010/4/doc2010-11
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  2. Cremer, Jacques & Palfrey, Thomas R., . "In or Out?: Centralization by Majority Vote," Working Papers 879, California Institute of Technology, Division of the Humanities and Social Sciences.
  3. Hindriks, Jean & Lockwood, Ben, 2009. "Decentralization and electoral accountability: Incentives, separation and voter welfare," European Journal of Political Economy, Elsevier, vol. 25(3), pages 385-397, September.
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  7. Lockwood, Ben, 2007. "Voting, Lobbying, and the Decentralization Theorem," The Warwick Economics Research Paper Series (TWERPS) 798, University of Warwick, Department of Economics.
  8. Jacques Cremer & Thomas R. Palfrey, 2000. "Federal Mandates by Popular Demand," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 905-927, October.
  9. Ben Lockwood, 2002. "Distributive Politics and the Costs of Centralization," Review of Economic Studies, Oxford University Press, vol. 69(2), pages 313-337.
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  11. Christoph Lülfesmann, 2000. "Central Governance or Subsidiarity: A Property-Rights Approach to Federalism," Bonn Econ Discussion Papers bgse5_2001, University of Bonn, Germany.
  12. Aidt, T. & Magris, F., 2003. "Capital Taxation and Electoral Accountability," Cambridge Working Papers in Economics 0318, Faculty of Economics, University of Cambridge.
  13. Stephen Morris & Stephen Coate, 1999. "Policy Persistence," American Economic Review, American Economic Association, vol. 89(5), pages 1327-1336, December.
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  16. Kessler, Anke & Luelfesmann, Christoph & Myers, Gordon M, 2009. "The Architecture of Federations: Constitutions, Bargaining, and Moral Hazard," CEPR Discussion Papers 7244, C.E.P.R. Discussion Papers.
  17. Bård Harstad, 2007. "Harmonization and Side Payments in Political Cooperation," American Economic Review, American Economic Association, vol. 97(3), pages 871-889, June.
  18. Roemer, John E., 1998. "Why the poor do not expropriate the rich: an old argument in new garb," Journal of Public Economics, Elsevier, vol. 70(3), pages 399-424, December.
  19. Aidt, Toke S. & Dutta, Jayasri, 2004. "Strategic consensus," Journal of Mathematical Economics, Elsevier, vol. 40(3-4), pages 227-245, June.
  20. John Ferejohn, 1986. "Incumbent performance and electoral control," Public Choice, Springer, vol. 50(1), pages 5-25, January.
  21. Fredriksson, Per G. & Matschke, Xenia & Minier, Jenny, 2010. "Environmental policy in majoritarian systems," Journal of Environmental Economics and Management, Elsevier, vol. 59(2), pages 177-191, March.
  22. 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.
  23. Alesina, Alberto & Spolaore, Enrico, 1997. "On the Number and Size of Nations," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1027-56, November.
  24. Bordignon, Massimo & Colombo, Luca & Galmarini, Umberto, 2008. "Fiscal federalism and lobbying," Journal of Public Economics, Elsevier, vol. 92(12), pages 2288-2301, December.
  25. Edwards, Jeremy & Keen, Michael, 1996. "Tax competition and Leviathan," European Economic Review, Elsevier, vol. 40(1), pages 113-134, January.
  26. 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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