Working Paper: CEPR ID: DP3585
Authors: Gil S. Epstein; Ira N. Gang
Abstract: Governments do not have perfect information regarding the priorities and the needs of different groups in the economy. This lack of knowledge opens the door for different groups to lobby the government in order to receive the government?s support. We set up a model of hierarchical contests and compare the implications of a centralized allocation process with a decentralized allocation process. We show the potential existence of a poverty trap as a result of fiscal federalism.
Keywords: contests; economic models of political processes; fiscal federalism; intergovernmental relations; interjurisdictional differentials and their effects
JEL Codes: D72; H73; H77
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| central authority's lack of information (D82) | inefficient allocations (D61) |
| inefficient allocations (D61) | lobbying to influence fund distribution (D72) |
| lobbying to influence fund distribution (D72) | potential poverty trap (I32) |
| size of a city (R12) | lobbying power (D72) |
| size of a city (R12) | overall lobbying efforts (D72) |
| more informed government (H11) | increased lobbying efforts (D72) |
| hierarchical structure of government (H10) | incentives for cities to maintain low economic status (R38) |