Working Paper: CEPR ID: DP7910
Authors: Anke Kessler
Abstract: The paper presents a positive model of communication in federal legislatures to study the incentives of members to engage in a meaningful exchange of information, and how this shapes policy outcomes. Depending on the type of policy under consideration, communication between delegates generally suffers from a bias that make truthful revelation difficult and sometimes impossible. This generates inefficient policy choices at the federal level that are often are endogenously characterized by overspending, universalism and uniformity. Building on these findings, I develop a simple theory of fiscal (de-)centralization, which revisits Oates' decentralization theorem in a world of incomplete information and strategic communication. Empirical results from a cross section of U.S. municipalities strongly support the predicted pattern of spending.
Keywords: communication; debate; fiscal federalism; legislative behavior; universalism
JEL Codes: D72; D82; H50; H77
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| fiscal authority (O23) | policy outcomes (D78) |
| communication bias (D91) | inefficient policy choices (D78) |
| communication bias (D91) | overspending/uniformity (H72) |
| communication bias (D91) | universalism (F01) |
| legislature size (D72) | government spending (H59) |
| legislature size (D72) | composition of expenditures (E20) |