Information transmission within federal fiscal architectures: Theory and evidence (discussion paper)
Dreher, A; Gehring, K; Kotsogiannis, C; et al.Marchesi, S
Date: 22 June 2016
Publisher
Centre for Economic Policy Research (CEPR)
Publisher DOI
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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 ...
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.
Economics
Faculty of Environment, Science and Economy
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