This paper explores the role of information transmission and misaligned interests across levels of governments in explaining variation in the degree of decentralization across countries. We analyze two alternative policy-decision schemes - "decentralization" and "centralization" - within a two-sided incomplete information principal-agent framework. The quality of communication depends on the conflict of interests between the government levels and on which government level controls the degree of decentralization. We show that the extent of misaligned interests and the relative importance of local and central government knowledge affect the optimal choice of policydecision schemes. Our empirical analysis confirms that countries' choices depend on the relative importance of their private information. Importantly, results differ significantly between unitary and federal countries, in line with our theory.

Dreher, A., Gehring, K., Kotsogiannis, C., Marchesi, S. (2016). Information transmission within federal fiscal architectures: Theory and evidence [Working paper].

Information transmission within federal fiscal architectures: Theory and evidence

Marchesi, S
2016

Abstract

This paper explores the role of information transmission and misaligned interests across levels of governments in explaining variation in the degree of decentralization across countries. We analyze two alternative policy-decision schemes - "decentralization" and "centralization" - within a two-sided incomplete information principal-agent framework. The quality of communication depends on the conflict of interests between the government levels and on which government level controls the degree of decentralization. We show that the extent of misaligned interests and the relative importance of local and central government knowledge affect the optimal choice of policydecision schemes. Our empirical analysis confirms that countries' choices depend on the relative importance of their private information. Importantly, results differ significantly between unitary and federal countries, in line with our theory.
Working paper
CEPR Discussion Paper Series No. 11344
Delegation, Centralization, Communication, Fiscal Decentralization, State and Local Government
English
2016
11344
www.cepr.org/active/publications/discussion_papers/dp.php?dpno=11344
Dreher, A., Gehring, K., Kotsogiannis, C., Marchesi, S. (2016). Information transmission within federal fiscal architectures: Theory and evidence [Working paper].
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10281/138638
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