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Federations, Constitutions, and Political Bargaining

Anke Kessler, Christoph Luelfesmann () and Gordon Myers
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Christoph Luelfesmann: Simon Fraser University,

Authors registered in the RePEc Author Service: Christoph Lülfesmann ()

Discussion Papers from Department of Economics, Simon Fraser University

Abstract: The paper studies a world where a region provides essential inputs for the successful implementation of a local public policy project with spill-overs, and where bargaining between different levels of government may ensure efficient decision making ex post. We ask whether the authority over the public policy measure should rest with the local government or be centralized, allowing financial relationships within the federation to be designed optimally. We show that centralization is always dominant when governments are benevolent, and that both governance structures are otherwise inefficient as long as political bargaining is disregarded. With bargaining, however, the first best can often be achieved under decentralization, but not under centralization. At the root of the result is the alignment of decision making over both essential inputs and final project size under decentralization.

Keywords: Federalism; Constitutions; Decentralization; Grants; Political Bargaining. (search for similar items in EconPapers)
JEL-codes: D23 D78 H21 H77 (search for similar items in EconPapers)
Pages: 40
Date: 2007-10
New Economics Papers: this item is included in nep-cdm, nep-law, nep-pbe, nep-pol and nep-ppm
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Handle: RePEc:sfu:sfudps:dp07-19