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This article analyses the relationship between decentralization and the extent of fiscal discipline in the Swiss cantons between 1984 and 2000. From a theoretical point of view, decentralization and federalism can be associated with both an expansive and a dampening effect on government debt. On the one hand, decentralized structures have been argued to lead to a reduction of debt due to inherent competition between the member states and the multitude of veto positions which restrict public intervention. On the other hand, decentralization has been claimed to contribute to an increase of public debt as it involves expensive functional and organizational duplications as well as cost-intensive, often debt-financed, compromise solutions between a large number of actors that operate in an uncoordinated and contradictory way. Our empirical results show that in periods of prosperous economic development, the architecture of state structure has no impact on debt. However, the degree of decentralization influences debt in economically poor times: In phases of economic recession, administratively decentralized cantons implement a more economical budgetary policy than centralized Swiss member states.
|Item Type:||Journal Article, refereed, original work|
|Communities & Collections:||06 Faculty of Arts > Institute of Political Science|
|DDC:||320 Political science|
|Date:||11 January 2008|
|Deposited On:||24 Dec 2008 15:09|
|Last Modified:||23 Nov 2012 14:50|
|Publisher:||Oxford University Press|
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