Working Paper: CEPR ID: DP2495
Authors: Timothy Besley; Stephen Coate
Abstract: This 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 behaviour in determining the case for centralization.
Keywords: decentralization; local public goods; distributive politics
JEL Codes: H40; H70; P51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| governance structure (centralized) (L22) | inequitable allocation of public goods (H49) |
| minimum winning coalitions (C71) | inequitable allocation of public goods (H49) |
| decentralized governance (H77) | better reflection of local preferences (H73) |
| decentralized governance (H77) | enhanced satisfaction among citizens (H11) |
| decentralization (H77) | freerider problems (H40) |
| spillovers (small) (O36) | decentralization is preferable (H77) |
| spillovers (significant) (O36) | centralization may be favored (H77) |
| governance structure (G38) | public goods provision (H41) |