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Why Does Centralisation Fail to Internalise Policy Externalities?

  • R Dur
  • H.J. Roelfsema

Abstract We provide an explanation for why centralisation of political decision making results in overspending in some policy domains, whereas too low spending persists in others. We study a model in which delegates from jurisdictions bargain over local public goods provision. If all of the costs of public goods are shared through a common budget, policy makers delegate bargaining to `public good lovers', resulting in overprovision of public goods. If a sufficiently large part of the costs can no be shared, underprovision persists because policy makers delegate bargaining to `conservatives'. We derive financing rules that eliminate the incentives for strategic delegation. Keywords: Centralised decision making, strategic delegation, financing rules.

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Paper provided by Utrecht School of Economics in its series Working Papers with number 04-09.

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Date of creation: 2004
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Handle: RePEc:use:tkiwps:0409
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  1. Alberto Alesina & Ignazio Angeloni & Ludger Schuknecht, 2005. "What does the European Union do?," Public Choice, Springer, vol. 123(3), pages 275-319, June.
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  12. Bolton, Patrick & Roland, Gerard, 1997. "The Breakup of Nations: A Political Economy Analysis," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1057-90, November.
  13. Wacziarg, Romain & Alesina, Alberto, 1999. "Is Europe Going Too Far?," Scholarly Articles 4553012, Harvard University Department of Economics.
  14. Persson, Torsten & Tabellini, Guido, 1994. "Does centralization increase the size of government?," European Economic Review, Elsevier, vol. 38(3-4), pages 765-773, April.
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  17. Guillaume Cheikbossian, 2000. "Federalism, distributive politics and representative democracy," Economics of Governance, Springer, vol. 1(2), pages 105-122, 07.
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