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Centralized or decentralized financing of local governments? Consequences for efficiency and inequality of service provision

  • Lars-Erik Borge

    ()

    (Department of Economics and Centre for Economic Research, Norwegian University of Science and Technology)

Compared with most countries the Norwegian system of financing local governments is highly centralized. Grants make up a substantial part of revenues and local taxes are highly regulated by the center. The development of the system was motivated by a desire to equalize service provision throughout the country. The purpose of this paper is to analyze possible consequences of more decentralized financing with local tax discretion. Contrary to the conventional wisdom the analysis indicates that decentralized financing is likely to give more equal provision of local public services. In addition, substantial efficiency gains can be obtained.

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Paper provided by Department of Economics, Norwegian University of Science and Technology in its series Working Paper Series with number 7806.

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Length: 28 pages
Date of creation: 06 Dec 2006
Date of revision:
Handle: RePEc:nst:samfok:7806
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Web page: http://www.svt.ntnu.no/iso/WP/wp.htm
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  3. Borge, Lars-Erik & Rattso, Jorn, 1995. "Demographic shift, relative costs and the allocation of local public consumption in Norway," Regional Science and Urban Economics, Elsevier, vol. 25(6), pages 705-726, December.
  4. 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.
  5. Seabright, Paul, 1994. "Accountability and Decentralization in Government: An Incomplete Contracts Model," CEPR Discussion Papers 889, C.E.P.R. Discussion Papers.
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  7. Wallace E. Oates, 2007. "On the Theory and Practise of Fiscal Decentralization," Working Papers 0701, CREI Università degli Studi Roma Tre, revised Jan 2007.
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  10. Borge, Lars-Erik, 1995. " Economic and Political Determinants of Fee Income in Norwegian Local Governments," Public Choice, Springer, vol. 83(3-4), pages 353-73, June.
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  18. Weingast, Barry R & Shepsle, Kenneth A & Johnsen, Christopher, 1981. "The Political Economy of Benefits and Costs: A Neoclassical Approach to Distributive Politics," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 642-64, August.
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