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Information transmission within federal fiscal architectures: theory and evidence


Dreher, Axel; Gehring, Kai; Kotsogiannis, Christos; Marchesi, Silvia (2018). Information transmission within federal fiscal architectures: theory and evidence. Oxford Economic Papers, 70(1):243-265.

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 analyse 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 policy-decision schemes. Our empirical analysis confirms that countries’ choices depend on the relative importance of private information. In line with our theory the results differ significantly between unitary and federal countries.

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 analyse 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 policy-decision schemes. Our empirical analysis confirms that countries’ choices depend on the relative importance of private information. In line with our theory the results differ significantly between unitary and federal countries.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:06 Faculty of Arts > Institute of Political Science
Dewey Decimal Classification:320 Political science
Language:English
Date:January 2018
Deposited On:29 Jan 2018 16:11
Last Modified:20 Sep 2018 04:28
Publisher:Oxford University Press
ISSN:0030-7653
OA Status:Closed
Publisher DOI:https://doi.org/10.1093/oep/gpx036

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