Selective Decentralized Leadership
34 Pages Posted: 22 Oct 2013
Date Written: October 19, 2013
In a federation with decentralized leadership, many regional governments provide multiple types of public goods and the center implements interregional income transfers. The symmetric perfect equilibrium under unlimited decentralized leadership is inefficient because regional public goods are overprovided. Symmetric perfect equilibria under selective decentralized leadership are socially efficient if regional governments restrict commitments to policies that regulate the provision of some types of public goods that generate interregional consumption spillovers. The efficiency result holds even when regional governments provide impure national public goods if the center possesses matching grants and the matching occurs after regional contributions of such public goods.
Keywords: policy commitments, multiple public goods, federations, decentralized leadership
JEL Classification: C72, D62, D72, D78, H41, H77, Q28
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