Information transmission within federal fiscal architectures: Theory and evidence

Axel Dreher, Kai Gehring, Christos Kotsogiannis and Silvia Marchesi

No 253, Working Papers from University of Milano-Bicocca, Department of Economics

Abstract: This paper explores the role of information transmission and misaligned interests across levels of government in explaining variation in the degree of decentralization across countries. Within a two-sided incomplete information principal-agent framework, it analyzes two alternative policy-decision schemes —‘decentralization’ and ‘centralization’— when ‘knowledge’ consists of unverifiable information and the quality of communication depends on the conflict of interests between the government levels. It is shown that, depending on which level of policy decision-making controls the degree of decentralization, the extent of misaligned interests and the relative importance of local and central government knowledge affects the optimal choice of policy-decision schemes. The empirical analysis shows that countries’ choices depend on the relative importance of their private information and the results differ significantly between unitary and federal countries.

Keywords: delegation; centralization; communication; fiscal decentralization; state and local government (search for similar items in EconPapers)
JEL-codes: C23 D82 D83 H7 H77 (search for similar items in EconPapers)
Pages: 49
Date: 2013-09, Revised 2013-09
New Economics Papers: this item is included in nep-cdm, nep-cta and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://repec.dems.unimib.it/repec/pdf/mibwpaper253.pdf First version, 2013 (application/pdf)

Related works:
Journal Article: Information transmission within federal fiscal architectures: theory and evidence (2018)
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)
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Persistent link: https://EconPapers.repec.org/RePEc:mib:wpaper:253

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