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Costs, Preferences, and Institutions: An Empirical Analysis of the Determinants of Government Decentralization

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  • Stegarescu, Dan

Abstract

This paper examines the factors determining vertical government structures. An empirical analysis for a panel of OECD countries indicates that apart from preferences, economies of scale, and other factors, institutions explain cross-national differences in the degree of fiscal decentralization. Accounting for taxing powers of subnational governments, the evidence strongly supports the collusion hypothesis according to which delegation of decision-making concerning the assignment of powers and national legislation to subnational representatives leads to increased tax centralization, as compared to direct participation of the citizens of the subnational entities. On the other hand, direct democracy at the national level is associated with higher centralization.

Suggested Citation

  • Stegarescu, Dan, 2005. "Costs, Preferences, and Institutions: An Empirical Analysis of the Determinants of Government Decentralization," ZEW Discussion Papers 05-39, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  • Handle: RePEc:zbw:zewdip:3282
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    File URL: https://www.econstor.eu/bitstream/10419/24130/1/dp0539.pdf
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    References listed on IDEAS

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    6. Devereux, Michael P. & Griffith, Rachel, 1998. "Taxes and the location of production: evidence from a panel of US multinationals," Journal of Public Economics, Elsevier, pages 335-367.
    7. Lammersen, Lothar, 2002. "The Measurement of Effective Tax Rates: Common Themes in Business Management and Economics," ZEW Discussion Papers 02-46, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    8. Johannes Becker & Clemens Fuest, 2004. "A Backward Looking Measure of the Effective Marginal Tax Burden on Investment," CESifo Working Paper Series 1342, CESifo Group Munich.
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    More about this item

    Keywords

    Determinants of Decentralization; Decision-making Institutions; Decentralization Theorem; Collusion Hypothesis;

    JEL classification:

    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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