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International Tax and Public Finance

, Volume 22, Issue 6, pp 1048–1076 | Cite as

Decentralization in Africa and the nature of local governments’ competition: evidence from Benin

  • Emilie Caldeira
  • Martial Foucault
  • Gregoire Rota-Graziosi
Article

Abstract

Decentralization has been put forward as a powerful tool to reduce poverty and improve governance in Africa. This paper will study the existence and identify the nature of spillovers resulting from local expenditure policies. These spillovers impact the efficiency of decentralization. We develop a two-jurisdiction model of public expenditure, which differs from existing literature by capturing the extreme poverty of some local governments in developing countries through a generalized notion of Nash equilibrium, namely constrained Nash equilibrium. We show how and under what conditions spillovers among jurisdictions induce strategic behaviors from local officials. By estimating a spatial lag model for a panel data analysis of the 77 communes in Benin from 2002 to 2008, our empirical analysis establishes the existence of the strategic complementarity of public spending in various jurisdictions. Thus, any increase in the local public provision in one jurisdiction should induce a similar variation among the neighboring jurisdictions. This result raises the issue of coordination among local governments, and more broadly, it questions the efficiency of decentralization in developing countries in line with Oates’ theorem.

Keywords

Local expenditures Developing countries Decentralization Constrained Nash equilibrium Strategic complementarity Spatial econometrics 

JEL Classification

D7 H7 01 

Notes

Acknowledgments

We thank the National Bureau of Economic Research (NBER), which has funded this project since 2009. We are grateful to the members of the Municipal Development Partnership (MDP) in Cotonou, especially Hervé Agossou, for their warm welcome, their valuable help in collecting data, their fruitful comments, and their discussions. We thank Elias Potek (University of Montreal, Geography Dept.) for his outstanding work in creating geographical maps in record time. We thank Simon Johnson (MIT), who has acted not only as a scientific mentor throughout our researching endeavors, but also as a valuable advisor. We thank Odd-Helge Fjeldstad (International Centre for Tax and Development) and François Vaillancourt (University of Montreal) for all of their helpful suggestions. We are grateful to Leonard Wantchekon (Princeton University) and the participants at the IREEP (Institut de Recherche Empirique en Economie Politique) conference, the CERDI (Centre d’Etudes et de Recherche sur le Développement International) seminar, and the CIRANO (Centre Interuniversitaire de Recherche en Analyse des Organisations) workshop, where a preliminary draft of this paper was presented in November 2010. Finally, we acknowledge financial support from the NBER Program on African Successes, especially Elisa Pepe for her amazing support throughout this project. Financial supports from the “Programme d’Investissements d’Avenir” of the French government (ANR-10-LABX-14-01) and the FERDI (Fondation pour les Etudes et Recherches sur le Développement International) are also warmly acknowledged.

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Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  • Emilie Caldeira
    • 1
  • Martial Foucault
    • 2
  • Gregoire Rota-Graziosi
    • 1
    • 3
  1. 1.CERDI-CNRS, Universitéd’ Auvergne, Economics DepartmentClermont-FerrandFrance
  2. 2.Sciences Po Paris, Political Science Department, CEVIPOF-CNRSParisFrance
  3. 3.Fiscal Affairs Department, International Monetary FundWashington, D.C.USA

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