Partial Fiscal Decentralization
Jan K. Brueckner
University of California, Irvine - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)
CESifo Working Paper No. 2137
The fiscal decentralization impulse now sweeping the world often leads to partial decentralization, where subnational governments are funded by central transfers, rather than leading to full local autonomy. Despite the practical importance of this arrangement, the literature contains no economic analysis of a partial decentralization regime in a Tiebout-style model. This paper provides such an analysis, relying on the key assumption that public-good provision requires effort on the part of government officials. By choosing different degrees of effort, localities can then provide different public-good levels even when a fixed, common transfer constrains them to spend the same amount. A number of useful results are derived.
Number of Pages in PDF File: 38
JEL Classification: H1, H7
Date posted: November 13, 2007