Asymmetric decentralization: distortions and opportunities

Fabio Fiorillo (), Michele Giuranno and Agnese Sacchi
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Fabio Fiorillo: Marche Polytechnic University

Economia Politica: Journal of Analytical and Institutional Economics, 2021, vol. 38, issue 2, No 9, 625-656

Abstract: Abstract This paper studies the interplay between central and local governments in defining the optimal degree of decentralization in terms of public goods supply. The choice between full centralization and asymmetric decentralization implies a trade-off between the possibility to provide public goods at a lower cost, wherever this is possible by decentralizing, and the possibility to fully internalize spillovers by full centralization. We find that asymmetric decentralization introduces distortions into the public decision-making process. We also demonstrate that the power to interfere in the central government’s ruling mechanisms should be reduced for the jurisdictions that have decentralized, in order to make their decentralization choice convenient even for the citizens in the less efficient jurisdictions. Finally, we find the conditions under which asymmetric decentralization can be simultaneously advantageous for both rich and poor regions through the design of appropriate equalization transfers.

Keywords: Public goods; Asymmetric decentralization; Intergovernmental relations; Equalization transfers; Positive political economy (search for similar items in EconPapers)
JEL-codes: D78 H0 H40 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s40888-020-00211-7

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