The Theory of Administrative Federalism: An Alternative to Fiscal Centralization and Decentralization

Robert Schwager
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Robert Schwager: Otto-von-Guericke-Universität

Public Finance Review, 1999, vol. 27, issue 3, 282-309

Abstract: Under administrative federalism, the central state sets quality standards for public projects and the local jurisdictions decide which projects are carried out. Decentralized decisions suffer from an interjurisdictional spillover. The central state cannot distinguish between useful and useless projects. It is shown that administrative federalism is always preferable to decentralization. This is due to the distinction between the net benefit of increasing the quality level for all projects and the net benefit of carrying out an additional project. If the information problem is sufficiently important, administrative federalism also is preferable to centralization. Finally, it may even implement the first best solution.

Date: 1999
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Persistent link: https://EconPapers.repec.org/RePEc:sae:pubfin:v:27:y:1999:i:3:p:282-309

DOI: 10.1177/109114219902700303

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