Building the theory: majoritarian electoral systems and party integration

We develop a comparative analysis of democratic decentralization (subnational elections) versus centralization (national elections) for economies with majoritarian electoral systems and party integration (the ability of party leaders to control the nomination of candidates in local and national elections). We identify a strong decentralization theorem that shows that decentralization dominates centralization even when local public goods show spillovers and the central government differentiates local public goods across localities. Our analysis shows that subnational elections create incentives for electoral accountability and politicians are persuaded to provide the goods and services desired by residents of each locality. In addition, party integration creates incentives for local policy coordination and local politicians to recognize the externalities of local public goods in other localities. As a result, local public goods under democratic decentralization and party integration are Pareto efficient and the regional distribution of public goods match the heterogeneous preferences of residents across localities.