Intertwined Federalism: Accountability Problems under Partial Decentralization

Decentralization of expenditure responsibilities from central to local governments is generally thought to increase overall government accountability by bringing the policymaking process closer to citizens. In practice, decentralization reforms tend to be partial in nature, leading to the coexistence of multiple tiers of government in public good provision. Electoral accountability in such a context presents voters with the complex task of assessing the respective role of each level of government in the policy outcomes that they observe. This paper analyses the effects of such partial decentralization on accountability using a two-period political agency model, in which two levels of government are involved in public good provision and voters are imperfectly informed about each government’s contribution to the public good. The model predicts that a departure from complete centralization (or decentralization) will, in general, have ambiguous consequences for voter welfare, the benefits associated with the vertical complementarity among governments being weighed against the loss of accountability following from imperfect information and detrimental vertical interactions among levels of government.