Centralized Versus Decentralized Provision of Local Public Goods: A Political Economy AnalysisThis paper takes a fresh look at the trade-off between centralized and decentralized provision of local public goods. The point of departure is to model a centralized system as one in which public spending is financed by general taxation, but districts can receive different levels of local public goods. In a world of benevolent governments, the disadvantages of centralization stressed in the existing literature disappear, suggesting that the case for decentralization must be driven by political economy considerations. Our political economy analysis assumes that under decentralization public goods are selected by locally elected representatives, while under a centralized system policy choices are determined by a legislature consisting of elected representatives from each district. We then study the role of taste heterogeneity, spillovers and legislative behavior in determining the case for centralization. |
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1's median voter 2mk² allocation asset prices assumption budgetary externality CEPR citizen of type concave function cooperative legislature decentralized system decisions decreasing district 1's median district 1's public district's representative districts are identical Economics elected representatives equilibrium European Central Bank Federal fiscal federalism France Télécom free-rider problems function ƒ m1 heterogeneity identical districts implies increasing spillovers inequality ization legislature consisting Lemma level of public level of spillovers level of surplus m₁ m₁k m2kp majority preferred types minimum winning coalition Nash equilibrium Oates order condition performance of centralization Persson player game policy outcome political economy analysis probability 1/2 Proof of Proposition public good level public goods surplus public spending representative types spillover levels spillovers are large spillovers are small strategic delegation surplus maximizing level surplus under centralization surplus under decentralization Tabellini Torsten Persson types A1 θλι