Economics of Governance

, Volume 3, Issue 2, pp 135–151 | Cite as

Vertical externalities and control of politicians

  • Matthias Wrede
Original Paper


A major role of (repeated) elections is to create incentives for politicians to act in the interests of voters. This paper considers the disciplining role of elections in countries with either one or two levels of government. Simple retrospective voting strategies which are based on cut-off levels with respect to expenditure and tax rates are considered. It is shown that the power of voters is weakened if a second independent level of government is added. However, voters can partially reinforce their power by making politicians not only liable for their own policy, but also for the policy carried out at each other level of government.

Key words: voting theory, separation of powers, vertical fiscal externalities 
JEL classification: D7, H0, H7 


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Copyright information

© Springer-Verlag Berlin Heidelberg 2002

Authors and Affiliations

  • Matthias Wrede
    • 1
  1. 1.Department of Economics, Aachen University of Technology, D-52056 Aachen, Germany (e-mail: DE

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