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The Politics of Fiscal Federalism: Building a Stronger Decentralization Theorem

Author

Listed:
  • Raúl A. Ponce-Rodríguez

    (Department of Economics, Universidad Autónoma de Ciudad Juárez)

  • Charles R. Hankla

    (Department of Political Science, Georgia State University)

  • Jorge Martinez-Vazquez

    (International Center for Public Policy, Department of Economics, Andrew Young School of Policy Studies, Georgia State University)

  • Eunice Heredia-Ortiz

    (Development Alternatives Inc., DAI)

Abstract
We explore how party structures can condition the benefits of decentralization in modern democracies. In particular, we study the interaction of two political institutions: democratic (de)centralization (whether a country has fiscally autonomous and elected local governments) and party (non)integration (whether power over local party leaders flows upwards through party institutions, which we model using control over candidate selection). We incorporate these institutions into our strong decentralization theorem, which expands on Oates (1972) to examine when the decentralized provision of public services will dominate centralized provision even in the presence of inter-jurisdictional spillovers. Our findings suggest that, when externalities are present, democratic decentralization will be beneficial only when parties are integrated. In countries with non-integrated parties, we find that the participation rules of primaries have implications for the expected gains from democratic decentralization. Under blanket primaries, Oates’ conventional decentralization theorem holds but our strong decentralization theorem does not. By contrast, when primaries are closed, not even Oates’ conventional decentralization theorem holds.

Suggested Citation

  • Raúl A. Ponce-Rodríguez & Charles R. Hankla & Jorge Martinez-Vazquez & Eunice Heredia-Ortiz, 2020. "The Politics of Fiscal Federalism: Building a Stronger Decentralization Theorem," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper2005, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    • Handle: RePEc:ays:ispwps:paper2005
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    References listed on IDEAS

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    1. Manuel E. Lago & Santiago Lago-Peñas & Jorge Martinez-Vazquez, 2024. "On the effects of intergovernmental grants: a survey," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(3), pages 856-908, June.

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