Costs, Preferences, and Institutions: An Empirical Analysis of the Determinants of Government Decentralization

48 Pages Posted: 24 Jun 2005 Last revised: 19 Aug 2008

See all articles by Dan Stegarescu

Dan Stegarescu

Center for European Economic Research (ZEW)

Date Written: 2005

Abstract

This paper examines the factors determining vertical government structures. An empirical analysis for a panel of OECD countries indicates that apart from preferences, economies of scale, and other factors, institutions explain cross-national differences in the degree of fiscal decentralization. Accounting for taxing powers of subnational governments, the evidence strongly supports the collusion hypothesis according to which delegation of decision-making concerning the assignment of powers and national legislation to subnational representatives leads to increased tax centralization, as compared to direct participation of the citizens of the subnational entities. On the other hand, direct democracy at the national level is associated with higher centralization.

Keywords: Determinants of Decentralization, Decision-making Institutions, Decentralization Theorem, Collusion Hypothesis

JEL Classification: H71, H72, H77

Suggested Citation

Stegarescu, Dan, Costs, Preferences, and Institutions: An Empirical Analysis of the Determinants of Government Decentralization (2005). ZEW - Centre for European Economic Research Discussion Paper No. 05-039, Available at SSRN: https://ssrn.com/abstract=748764 or http://dx.doi.org/10.2139/ssrn.748764

Dan Stegarescu (Contact Author)

Center for European Economic Research (ZEW) ( email )

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