Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/26162
Authors: 
Lockwood, Benjamin
Year of Publication: 
2007
Series/Report no.: 
CESifo working paper 2117
Abstract: 
This paper revisits the fiscal decentralization theorem, by relaxing the role of the assumption that governments are benevolent, while retaining the assumption of policy uniformity. If instead, decisions are made by direct majority voting, (i) centralization can welfare-dominate decentralization even if there are no externalities and regions are heterogenous; (ii) decentralization can welfare-dominate centralization even if there are positive externalities and regions are homogenous. The intuition is that the insensitivity of majority voting to preference intensity interacts with the different inefficiencies in the two fiscal regimes to give second-best results. Similar results obtain when governments are benevolent, but subject to lobbying, because now decisions are too sensitive to the preferences of the organised group.
Subjects: 
decentralization
majority voting
lobbying
local public goods
JEL: 
H41
H70
H72
Document Type: 
Working Paper

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