Social Choice and Welfare

, Volume 47, Issue 2, pp 315–348 | Cite as

The political economy of (De)centralization with complementary public goods

Original Paper

Abstract

This paper provides a political economy analysis of (de)centralization when local public goods—with spillovers effects—can be substitutes or complements. Depending on the degree of complementarity between local public goods, median voters strategically delegate policy to either ‘conservative’ or to ‘liberal’ representatives under decentralized decision-making. In the first case, it accentuates the free-rider problem in public good provision, while it mitigates it in the second case. Under centralized decision-making, the process of strategic delegation results in either too low or too much public spending, with the outcome crucially depending on the sharing of the costs of local public spending relative to the size of the spillover effects. Hence, with a common financing rule, centralization is welfare improving if and only if both public good externalities and the degree of complementarity between local public goods are both relatively large.

Keywords

(De)centralization Local public goods complements Strategic delegation Spillovers 

JEL Classification

D72 H41 H77 

Supplementary material

355_2016_962_MOESM1_ESM.pdf (125 kb)
Supplementary material 1 (pdf 125 KB)

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Copyright information

© Springer-Verlag Berlin Heidelberg 2016

Authors and Affiliations

  1. 1.Faculté d’Economie (LAMETA)Université de Montpellier and Toulouse School of EconomicsMontpellier cedex 2France

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