Decentralization and Electoral Accountability: Incentives, Separation, and Voter Welfare

46 Pages Posted: 9 Aug 2005

See all articles by Jean Hindriks

Jean Hindriks

University of London - School of Economics and Finance

Ben Lockwood

University of Warwick - Department of Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: July 2005

Abstract

This paper studies the relationship between fiscal decentralization and electoral accountability, by analyzing how decentralization impacts upon incentive and selection effects, and thus on voter welfare. The model abstracts from features such as public good spillovers or economies of scale, so that absent elections, voters are indifferent about the fiscal regime. The effect of fiscal centralization on voter welfare works through two channels: (i) via its effect on the probability of pooling by the bad incumbent; (ii) conditional on the probability of pooling, the extent to which, with centralization, the incumbent can divert rents in some regions without this being detected by voters in other regions (selective rent diversion). Both these effects depend on the information structure: whether voters only observe fiscal policy in their own region, in all regions, or an intermediate case with a uniform tax across all regions. More voter information does not necessarily raise voter welfare, and under some conditions, voters would choose uniform over differentiated taxes ex ante to constrain selective rent diversion.

JEL Classification: D72, D73, H41

Suggested Citation

Hindriks, Jean and Lockwood, Ben, Decentralization and Electoral Accountability: Incentives, Separation, and Voter Welfare (July 2005). CESifo Working Paper Series No. 1509, Available at SSRN: https://ssrn.com/abstract=775505

Jean Hindriks

University of London - School of Economics and Finance ( email )

Mile End Road
London, E1 4NS
United Kingdom
+44 20 7882 7807 (Phone)
+44 20 8983 3580 (Fax)

HOME PAGE: http://www.dc.eclipse.co.uk/hindriks.html

Ben Lockwood (Contact Author)

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom
+44 24 7652 8906 (Phone)
+44 24 7657 2548 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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