Information transmission within federal fiscal architectures: theory and evidence

Axel Dreher, Kai Gehring, Christos Kotsogiannis and Silvia Marchesi

Oxford Economic Papers, 2018, vol. 70, issue 1, 243-265

Abstract: This paper explores the role of information transmission and misaligned interests across levels of governments in explaining variation in the degree of decentralization across countries. We analyse two alternative policy-decision schemes—‘decentralization’ and ‘centralization’— within a two-sided incomplete information principal–agent framework. The quality of communication depends on the conflict of interests between the government levels and on which government level controls the degree of decentralization. We show that the extent of misaligned interests and the relative importance of local and central government knowledge affect the optimal choice of policy-decision schemes. Our empirical analysis confirms that countries’ choices depend on the relative importance of private information. In line with our theory the results differ significantly between unitary and federal countries.

JEL-codes: C23 D82 D83 H70 H77 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Information transmission within federal fiscal architectures: Theory and evidence (2016)
Working Paper: Information Transmission within Federal Fiscal Architectures: Theory and Evidence (2013)
Working Paper: Information Transmission within Federal Fiscal Architectures: Theory and Evidence (2013)
Working Paper: Information transmission within federal fiscal architectures: Theory and evidence (2013)
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