A benchmark model: Fiscal decentralization versus centralization

Bilin Neyapti ()

Chapter 3 in Understanding Fiscal Decentralization, 2025, pp 51-63 from Edward Elgar Publishing

Abstract: This chapter presents a simple formal framework to address the welfare implications of local government spending decisions in the context of a transfer rule, compared to centralized transfer decisions to localities. The solution of the model indicates that decentralized decision-making leads to welfare loss in the form of inflation bias, depending on the extent of soft budget constraints reflected by institutional weaknesses. Several potential extensions and modifications are also addressed.

Keywords: Fiscal Decentralization; Welfare; Redistribution; Transfer Rule; Soft Budget Constraint (search for similar items in EconPapers)
Date: 2025
ISBN: 9781803925561
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