Revisiting the "Decentralization Theorem"--On the role of externalities

Marko Koethenbuerger

Journal of Urban Economics, 2008, vol. 64, issue 1, 116-122

Abstract: The "Decentralization Theorem" [Oates, W.E., 1972. Fiscal Federalism. Harcourt Brace Jovanovich, New York] is central to the discussion of fiscal federalism. We revisit the role of consumption spillovers in evaluating the merits of (de)centralization. Unlike the general prediction, a higher degree of spillovers may reduce the difference in utility of centralization and decentralization. The non-monotonicity result relates to the difference in expenditures on public consumption. Provided decentralized choices yield higher levels of public expenditure, a rise in the amount of spillovers allows residents to enjoy larger gains in public consumption (and thereby utility) under decentralization relative to centralization.

Keywords: Federalism; Decentralization; Theorem; Externality; Policy; uniformity (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (11)

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Working Paper: Revisiting the “Decentralization Theorem” – On the Role of Externalities (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:juecon:v:64:y:2008:i:1:p:116-122

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