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The Political Economy of (De)centralization with Complementary Public Goods

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  • Cheikbossian, Guillaume

Abstract

This paper provides a political economy analysis of (de)centralization when local public goods -- with spillovers effects -- can be substitutes or complements. Depending on the degree of complementarity between local public goods, median voters strategically delegate policy to either `conservative' or to `liberal' representatives under decentralized decision-making. In the first case, it accentuates the free-rider problem in public good provision, while it mitigates it in the second case. Under centralized decision-making, the process of strategic delegation results in either too low or too much public spending, with the outcome crucially depending on the sharing of the costs of local public spending relative to the size of the spillover effects. Hence, with a common financing rule, centralization is welfare improving if and only if both public good externalities and the degree of complementarity between local public goods are both relatively large.

Suggested Citation

  • Cheikbossian, Guillaume, 2016. "The Political Economy of (De)centralization with Complementary Public Goods," TSE Working Papers 16-644, Toulouse School of Economics (TSE).
  • Handle: RePEc:tse:wpaper:30433
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    More about this item

    Keywords

    (De)centralization; Local Public Goods; Complements; Strategic Delegation; Spillovers;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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