Decentralizing Development: Evidence from Government Splits
79 Pages Posted: 18 Feb 2018 Last revised: 12 Sep 2023
Date Written: May 20, 2021
Abstract
Changes in political boundaries aimed at devolving power to local governments are common in many countries. We examine the economic consequences of redistricting through the creation of smaller government units. Exploiting reforms that led to sharp variations in the number of government units in Brazil, we show that voluntary redistricting increases the size of the public sector, public services delivery, and economic activity in new local governments over the long-term. These benefits are not offset by losses elsewhere and are stronger in peripheral and remote backward areas that are neglected by their parent governments. We provide evidence that the decentralization of decision-making power boosts local development in disadvantaged areas beyond simply gains in fiscal revenues.
Keywords: redistricting, decentralization, political boundaries, development, state capacity
JEL Classification: O12
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