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On the Endogenous Allocation of Decision Powers in Federal Structures

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  • Lorz, Jens Oliver
  • Willmann, Gerald

Abstract

This paper provides a political-economy explanation of the degree of centralization in economic policy making. To determine which policies are to be centralized, regions select representatives who then negotiate the degree of centralization and the regional cost shares of centrally decided policies. We show that the resulting degree of centralization is suboptimally low. Voters strategically delegate to representatives who are averse to public spending and hence prefer decentralized decisions in order to reduce their region's cost share. When spillovers are asymmetric, strategic delegation is stronger at the periphery than at the center.

Suggested Citation

  • Lorz, Jens Oliver & Willmann, Gerald, 2004. "On the Endogenous Allocation of Decision Powers in Federal Structures," University of Göttingen Working Papers in Economics 25, University of Goettingen, Department of Economics.
  • Handle: RePEc:zbw:cegedp:25
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    More about this item

    Keywords

    Political Economy; Fiscal Federalism; Endogenous Centralization; Constitutional Design;
    All these keywords.

    JEL classification:

    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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