UNSPECIFIED. (2002) Distributive politics and the costs of centralization. REVIEW OF ECONOMIC STUDIES, 69 (2). pp. 313-337. ISSN 0034-6527

Abstract

This paper studies the choice between centralization and decentralization of fiscal policy in apolitical economy setting. With centralization, regional delegates vote over agendas comprising sets of region-specific projects. The outcome is inefficient because the choice of projects is insufficiently sensitive to within-region benefits, The number of projects funded may be non-monotonic in the strength of project externalities, The efficiency gains from decentralization, and the performance of "constitutional rules" (such as majority voting) which may be used to choose between decentralization and centralization, are then discussed in this framework, Weaker externalities and more heterogeneity between regions need not increase the efficiency gain from decentralization.

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