The Library

Decentralization and electoral accountability: incentives, separation, and voter welfare

Tools

Hindriks, Jean and Lockwood, Ben (2005) Decentralization and electoral accountability: incentives, separation, and voter welfare. Working Paper. Coventry: University of Warwick, Department of Economics. Warwick economic research papers (No.729).

Preview

PDF
WRAP_Hendriks_twerp_729.pdf - Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader
Download (457Kb)

Official URL: http://www2.warwick.ac.uk/fac/soc/economics/resear...

Abstract

This paper studies the relationship between fiscal decentralization and electoral accountability, by analyzing how decentralization impacts upon incentive and selection effects, and thus on voter welfare. The model abstracts from features such as public good spillovers or economies of scale, so that absent elections, voters are indifferent about the fiscal regime. The effect of fiscal centralization on voter welfare works through two channels: (i) via its effect on the probability of pooling by the bad incumbent; (ii) conditional on the probability of pooling, the extent to which, with centralization, the incumbent can divert rents in some regions without this being detected by voters in other regions (selective rent diversion). Both these effects depend on the information structure; whether voters only observe fiscal policy in their own region, in all regions, or an intermediate case with a uniform tax across all regions. More voter information does not necessarily raise voter welfare, and under some conditions, voter would choose uniform over differentiated taxes ex ante to constrain selective rent diversion.

Item Type:

Working or Discussion Paper (Working Paper)

Subjects:

H Social Sciences > HB Economic Theory

Divisions:

Faculty of Social Sciences > Economics

Library of Congress Subject Headings (LCSH):

Social choice, Decentralization in government, Fiscal policy, Finance, Public, Government accountability, Voting research

Series Name:

Warwick economic research papers

Publisher:

University of Warwick, Department of Economics

Place of Publication:

Coventry

Official Date:

March 2005

Dates:

Date	Event
March 2005	Published

Number:

No.729

Number of Pages:

Institution:

University of Warwick

Status:

Not Peer Reviewed

Access rights to Published version:

Open Access

Description:

First version: March 2004, this version: March 2005

References:

[1] Alesina, A. and E. Spolare (1997), \On the Number and Size of Nations," Quarterly Journal of Economics, 112, 1027-56.
[2] Azfar, O., S. Kahkonen, and P. Meagher (2001) "Conditions for Effective Decentralised Governance: A Synthesis of Research Findings", IRIS Center, University of Maryland.
[3] Bardhan, P. and D. Mookerjeee (2000), "Capture and Governance at Local and National Levels," American Economic Review, 90(2), 135-139.
[4] Baron, D. and D. Besanko (1992), "Information, Control and Organizational Structure", Journal of Economics and Management Strategy
[5] Banks, J.S. and R.K. Sundaram (1998), "Optimal Retention in Agency problems", Journal of Economic Theory 82, 293-323.
[6] Besley, T. and S. Coate (2003), \Centralized versus Decentralized Provision of Local Public Goods: a Political Economy Approach", Journal of Public Economics, 87, 2611-37.
[7] Besley, T. and M. Smart (2003), \Does Tax Competition Raise Voter Welfare?". mimeo, London School of Economics.
[8] Beaudry, P. and M. Poitevin (1995), "Contract Renegotiation: a Simple Framework and Implications for Organization Theory", Canadian Journal of Economics, 28, 302-35.
[9] Bolton, P. and G. Roland (1997), \The Break-Up of Nations: A Political Economy Analysis" Quarterly Journal of Economics, 112, 1057-90.
[10] Cremer. J. and T.Palfrey, (1996), \In or Out? Centralization by Majority Vote", European Economic Review 40, 43-60.
[11] J.S.Demski and M.Sappington (1984) " Optimal Incentive Schemes with Multiple Agents", Journal of Economic Theory 33, 152-171.
[12] Ellingsen, T.(1998), \Externalities vs. Internalities: A Model of Political Integration", Journal of Public Economics, 68, 251-268.
[13] Faguet, J-P, (2004), "Does Decentralization Increase Government Responsiveness to Local Needs? Evidence from Bolivia" Journal of Public Economics 88, 667-893
[14] Ferejohn, J. (1986), Incumbent performance and electoral control, Public Choice 50, 5-25.
[15] Finnoccario, C.J. and T.Lin(2000), "The Hazards of Incumbency: An Event-History Analysis of Congressional Tenure", unpublished paper, University of Michigan
[16] Fissman, R., and R.Gatti (2002) "Decentralization and Corruption: Evidence Across Countries," Journal of Public Economics, 83(3), 325-45.
[17] Fissman,R. and R.Gatti (2002a), "Decentralization and Corruption: Evidence from US Transfer Programs", Public Choice, 113, 25-35
[18] Gilbert, G. and P.Picard (1996), \Incentives and the Optimal Size of Local Jurisdictions", European Economic Review 40, 19-43.
[19] Henderson, J.V, and A.Kuncoro (2004) "Corruption in Indonesia", NBER Working Paper W10674
[20] Huther, J. and A.Shah (1998) "Applying a Simple Measure of Good Governance to the Debate on Fiscal decentralization", World Bank Policy Research Working Paper 1894.
[21] Laffont, J.-J., and D. Martimort (1998), "Collusion and Delegation", Rand Journal of Economics, 29, 280-305.
[22] Laffont, J.-J., and J. Tirole (1998), "The Dynamics of Incentive Contracts"", Econometrica, 56, 1153-75.
[23] Lockwood, B., (2002), "Distributive Politics and the Costs of Centralization", Review of Economic Studies, 69(2), 313-337.
[24] Lockwood, B., (2005), "A Note on the Hybrid Equilibrium in the Besley-Smart Model"", Warwick Economics Working Paper 727.
[25] Maskin, E., Y. Quian and C. Xu (2000), "Incentive, Information and Organizational Form", Review of Economic Studies 67 (2), 359-78.
[26] McKinnon, R., T. Nechyba (1997), "Competition in Federal Systems: Political and financial Constraint", in J. Ferejohn and B. R. Weingast, eds., The New federalism: Can the States be Trusted? Stanford: Hoover Institution Press.
[27] Mello,L. and M.Barenstein (2001), "Fiscal Decentralization and Governance: A Cross-Country Approach", IMF Working Paper 01/71.
[28] Melumad, N., D. Mookherjee, and S. Reichelstein (1997), "Contract Complexity, Incentives, and the Value of Delegation", Journal of Economics and Management Strategy, 6, 257-89.
[29] Myerson, R. (1982), "Optimal Coordination Mechanisms in Generalized Principal-Agent Problems" Journal of Mathematical Economics 10, 67-81.
[30] Myerson, R. (1993), "Effectiveness of Electoral Systems for Reducing Government Corruption: a Game Theoretic Analysis", Games and Economic Behavior 5, 118-32.
[31] Myerson, R. (1999), "Theoretical Comparisons of Electoral Systems" European Economic Review 43, 671-97.
[32] Oates, W. (1972), Fiscal Federalism, Harcourt-Brace, New York.
[33] Oates, W (1999), "An Essay on Fiscal Federalism," Journal of Economic Literature, 37(3), 1120-49.
[34] Oberholzer-Gee, Felix and Koleman S. Strumpf (2002): "Endogeneous Policy Decentralization: Testing the Central Tenet of Economic Federalism," Journal of Political Economy, 110, 1-36.
[35] Persson, T. and G. Tabellini (1999), The Size and the Scope of Government: Comparative Politics with Rational Politicians, European Economic Review 43, 699-735.
[36] Persson, T. and G. Tabellini (2000), Political Economics: Explaining Economic Policy, MIT Press, Cambridge, MA..
[37] Persson, T., G. Tabellini, and F. Trebbi (2000), Electoral Rules and Corruption" NBER Working Paper No. 8154.
[38] Rogoff, K. (1990), Equilibrium political budget cycles, American Economic Review 80: 21-37.
[39] Seabright, P. (1996), \Accountability and Decentralization in Government: an Incomplete Contracts Model", European Economic Review 40, 61-91.
[40] Treisman, D, (2000), \The Causes of Corruption: A Cross-National Study", Journal of Public Economics, 76: 399-457.
[41] Treisman, Daniel (2002), "Decentralization and the Quality of Government", unpublished paper, Department of Political Science, UCLA.
[42] Wallis, J. and W.E.Oates (1988), \Decentralization in the Public Sector: an Empirical Study of State and Local Government", in Rosen, H.J. (ed.), in Fiscal Federalism: Quantitative Studies, University of Chicago Press.
[43] World Bank (2000), Entering the 21st Century, World Development Report.