Kiel Working Papers, Kiel Institute for World Economics
No 1209:
On the Endogenous Allocation of Decision Powers in Federal Structures
Oliver Lorz and Gerald Willmann
Abstract: This paper provides a political-economy explanation of the
degree of centralization in economic policy making. To determine which
policies are to be centralized, regions select representatives who then
negotiate the degree of centralization and the regional cost shares of
centrally decided policies. We show that the resulting degree of
centralization is suboptimally low. Voters strategically delegate to
representatives who are averse to public spending and hence prefer
decentralized decisions in order to reduce their region's cost share. When
spill-overs are asymmetric, strategic delegation is stronger at the
periphery than at the center.
Keywords: Political Economy, Fiscal Federalism, Endogenous Centralization, Constitutional Design; (follow links to similar papers)
JEL-Codes: H11,; H41,; H77; (follow links to similar papers)
22 pages, April 2004
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