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On the Endogenous Allocation of Decision Powers in Federal Structures

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  • Lorz, Jens Oliver
  • Willmann, Gerald

Abstract

This paper provides a political-economy explanation of the degree of centralization in economic policy making. To determine which policies are to be centralized, regions select representatives who then negotiate the degree of centralization and the regional cost shares of centrally decided policies. We show that the resulting degree of cen- tralization is suboptimally low. Voters strategically delegate to repre- sentatives who are averse to public spending and hence prefer decen- tralized decisions in order to reduce their region's cost share. When spill-overs are asymmetric, strategic delegation is stronger at the pe- riphery than at the center.

Suggested Citation

  • Lorz, Jens Oliver & Willmann, Gerald, 2004. "On the Endogenous Allocation of Decision Powers in Federal Structures," Kiel Working Papers 1209, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkwp:1209
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    More about this item

    Keywords

    Political Economy; Fiscal Federalism; Endogenous Centralization; Constitutional Design;
    All these keywords.

    JEL classification:

    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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