The Cost of Decentralization: Linguistic Polarization and the Provision of Education
44 Pages Posted: 16 May 2016
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The Cost of Decentralization: Linguistic Polarization and the Provision of Education
Date Written: May 2016
Abstract
In this paper we argue that different preferences in a decentralized system lead to under provision of public goods. We analyze the provision of public primary education in nineteenth-century Prussia which was characterized by a linguistically polarized society and a decentralized education system. Using unique county-level data on education spending we show that linguistic polarization has a negative impact on local spending. Instrumental variable estimates using distance to the eastern border suggest that the relationship can be causally interpreted. Exploiting a reform of education spending, we show that centralization increases the provision of primary education relatively more in linguistically polarized counties.
Keywords: Centralization, Decentralization, education, Polarization, Prussia, Public Goods
JEL Classification: H41, H75, I22, N13, N33
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