Fiscal Centralization and the Political Process

Facundo Albornoz
Authors registered in the RePEc Author Service: Antonio Cabrales

No 7665, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We study the dynamic support for fiscal decentralization in a political agency model from the perspective of a region. We show that corruption opportunities are lower under centralization at each period of time. However, centralization makes more difficult for citizens to detect corrupt incumbents. Thus, corruption is easier under centralization for low levels of political competition. We show that the relative advantage of centralization depends negatively on the quality of the local political class, but it is greater if the center and the region are subject to similar government productivity shocks. When we endogenize the quality of local politicians, we establish a positive link between the development of the private sector and the support for decentralization. Since political support to centralization evolves over time, driven either by economic/political development or by exogenous changes in preferences over public good consumption, it is possible that voters are (rationally) discontent about it. Also, preferences of voters and the politicians about centralization can diverge when political competition is weak.

Keywords: Centralization; Corruption; Decentralization; Political agency; Quality of politicians (search for similar items in EconPapers)
JEL-codes: D72 D73 H11 P16 (search for similar items in EconPapers)
Date: 2010-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Fiscal Centralization and the Political Process (2010)
Working Paper: Fiscal centralization and the political process (2010)
Working Paper: Fiscal Centralization and the Political Process (2010)
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