partial fiscal decentralization and demand responsiveness of the local public sector theory and evidence from norway this paper provides an empirical test of a principal tenet of fiscal federalism that spending discretion when granted to localities allows public good levels to adjust to suit local demands the test is based on a simple model of partial fiscal decentralization under which earmarking of central transfers for particular uses is eliminated allowing funds to be spent according to local tastes the greater role of local demand determinants following partial decentralization is confirmed by the paper s empirical results which show the effects of the 1986 norwegian reform

centralized versus decentralized provision of local public goods a political economy approach abstract this paper takes a fresh look at the trade off between centralized and decentralized provision of local public goods it argues that the sharing of the costs of local public spending in a centralized system will create a conflict of interest between citizens in different jurisdictions when spending decisions are made by a legislature of locally elected representatives this conflict of interest will play out in the legislature depending on precisely how the legislature behaves the result may be excessive public spending or allocations of public goods characterized by uncertainty and misallocation across districts the extent of the conflict of interest between districts is affected by spillovers and differences in tastes for public spending thus the relative performance of centralized and decentralized systems depends upon spillovers and differences in tastes for public spending but for different reasons than suggested in the existing literature

capture and governance at local and national levels 135 despite the importance of this issue not much systematic research appears to have been devoted to assessing the relative susceptibility of national and local governments to interestgroup capture here we describe a model of two party electoral competition with probabilistic voting behavior and lobbying by specialinterest groups based on david baron 1994 and gene grossman and elhanan helpman 1996 that helps identify determinants of relative capture at different levels of government these include relative levels of voter awareness and interest group cohesiveness electoral uncertainty electoral competition heterogeneity of districts with respect to inequality and the electoral system while some of these uphold the traditional madisonian presumption others are likely to create a tendency for lower capture at the local level so the net effect is theoretically ambiguous this suggests that the extent of relative capture may be context specific and needs to be assessed empirically

partial fiscal decentralization reforms and educational outcomes a difference in differences analysis for spain abstract several arguments derived from fiscal federalism theory suggest that decentralization may improve the provision of public goods and services however theory remains inconclusive regarding these effects under partial decentralization the aim of this study is to examine this hypothesis by evaluating the effects on educational outcomes of the partial fiscal decentralization reform that took place in spain during the 1980s since education competences were devolved to the regions at different points in time we can consistently estimate the effects of this reform by applying the differences in differences method and by using the non decentralized regions as the comparison group we find that the reform had a sizeable impact on the percentage of students dropping out early from school the effects are much stronger for regions with a high level of revenues we also find that the effects are concentrated in the high school program and that the reform was not able to improve educational outcomes in the vocational program we interpret these results as evidence that decentralization improved the match between education policy and population preferences

does competition among public schools benefit students and taxpayers tiebout choice among districts is the most powerful market force in american public education naive estimates of its effects are biased by endogenous district formation i derive instruments from the natural boundaries in a metropolitan area my results suggest that metropolitan areas with greater tiebout choice have more productive public schools and less private schooling little of the effect of tiebout choice works through its effect on household sorting this finding may be explained by another finding students are equally segregated by school in metropolitan areas with greater and lesser degrees of tiebout choice among districts

decentralization of governance and development all around the world in matters of governance decentralization is the rage even apart from the widely debated issues of subsidiarity and devolution in the european union and states rights in the united states decentralization has been at the center stage of policy experiments in the last two decades in a large number of developing and transition economies in latin america africa and asia the world bank for example has embraced it as one of the major governance reforms on its agenda for example world bank 2000 burki perry and dillinger 1999 take also the examples of the two largest countries of the world china and india decentralization has been regarded as the major institutional framework for the phenomenal industrial growth in the last two decades in china taking place largely in the nonstate nonprivate sector india ushered in a landmark constitutional reform in favor of decentralization around the same time it launched a major program of economic reform in the early 1990s on account of its many failures the centralized state everywhere has lost a great deal of legitimacy and decentralization is widely believed to promise a range of benee ts it is often suggested as a way of reducing the role of the state in general by fragmenting central authority and introducing more intergovernmental competition and checks and balances it is viewed as a way to make government more responsive and efe cient technological changes have also made it somewhat easier than before to provide public services like electricity and water supply relatively efe ciently in smaller market areas and the lower levels of government have now a greater ability to handle certain tasks in a world of rampant ethnic cone icts and separatist movements decentralization is also regarded as a way of diffusing social and political tensions and ensuring local cultural and political autonomy these potential benee ts of decentralization have attracted a very diverse range

the breakup of nations a political economy analysis this paper develops a model of the breakup or unification of nations in each nation the decision to separate is taken by majority voting a basic trade off between the efficiency gains of unification and the costs in terms of loss of control on political decisions is highlighted the model emphasizes political conflicts over redistribution policies the main results of the paper are i when income distributions vary across regions and the efficiency gains from unification are small separation occurs in equilibrium and ii when all factors of production are perfectly mobile all incentives for separation disappear i introduction following the demise of communism the entire map of europe from the atlantic coast to the urals is being redrawn and issues of separation unification and the redrawing of borders are yet again at the forefront of european concerns many of the issues raised by this process are primarily of a political cultural or linguistic nature however there are also economic considerations that bear on this problem the objective of this paper is to analyze some important economic and political determinants of the process of unification and separation of democratic nations the starting point of our analysis is to suppose that from an economic efficiency point of view separation of nations is never desirable a unified nation is always more efficient since free trade among regions is guaranteed duplication costs in defense and law enforcement are avoided and local public goods provision such as transportation and communication networks or common standards can be coordinated furthermore any benefits of decentralization that might be obtained in a world with several nations may also be achieved within a unified nation by replicating the administrative structure of the world with several

the failure of input based schooling policies in an effort to improve the quality of schools governments around the world have dramatically increased the resources devoted to them by concentrating on inputs and ignoring the incentives within schools the resources have yielded little in the way of general improvement in student achievement this paper provides a review of the us and international evidence on the effectiveness of such input policies it then contrasts the impact of resources with that of variations in teacher quality that are not systematically related to school resources finally alternative performance incentive policies are described

decentralization and pollution spillovers evidence from the re drawing of county borders in brazil decentralization can improve service delivery but it can also generate externalities across jurisdictional boundaries we examine the nature and size of water pollution externalities as rivers flow across jurisdictions panel data on water pollution in brazilian rivers coupled with county splits that change the locations of borders allow us to identify the spatial patterns of pollution as rivers approach and cross borders controlling for fixed effects and trends specific to each location the theory of externalities predicts that pollution should increase at an increasing rate as the river approaches the downstream exit border that there should be a structural break in the slope of the pollution function at the border and that a larger number of managing jurisdictions should exacerbate pollution externalities we find support for all four predictions in the data satellite data on growth in night time lights along rivers show that local authorities allow more settlements to develop close to rivers in the downstream portions of counties which is the likely underlying mechanism the border effects on pollution are not as pronounced when the cost of inter jurisdictional coordination is lower

economic instruments and induced innovation the european policies on end of life vehicles abstract the paper addresses the mechanisms by which specific economic instruments based on the producer responsibility principle prp can influence innovation when environmental policy has impact on very complex industrial subsystems we consider the eu policy on end of life vehicles directive 2000 53 ec on elvs as a representative case study of multiple industry prp instrument dynamic efficiency problems in order to achieve ambitious policy targets on elv recovery recycling reuse interrelated sequences of single innovations in both upstream car making and downstream car recycling recovery should take place we explore the extent to which the introduction of a free take back ftb instrument can influence industrial actors in contributing to innovation paths that are still marked by technological uncertainty evolving capabilities and different cost benefit balances for actors themselves we conclude that differently from static approaches in which the ei and its formulation is neutral with respect to policy effectiveness the dynamic efficiency of eis in elv like problems depends both on where along the production to waste chain and how in terms of net cost allocation the specific incentive is introduced consequently in order to generate a policy desired innovation path the way in which the ei related incentive allocated to a certain industry is transmitted to other industries whether upward or downward along the chain is also relevant disregarding these effects can imply a dissipation of innovation incentives and the generation of regulation induced rents for some actors cannot be ruled out policies based on prp should consider eis in conjunction with enforceable voluntary agreements

decentralization and corruption evidence across countries the relationship between decentralization of government activities and the extent of rent extraction by private parties is an important element in the recent debate on institutional design the theoretical literature makes ambiguous predictions about this relationship and it has remained virtually unexamined by empiricists the authors make a first attempt at examining the issue empirically by looking at the cross country relationship between fiscal decentralization and corruption as measured by a number of different indices their estimates suggest that fiscal decentralization in government spending is significantly associated with lower corruption moreover they find that the origin of a country s legal system for example civil versus common legal code performs extremely well as an instrument for decentralization the estimated relationship between decentralization when so instrumented and corruption is even stronger the evidence suggests a number of interesting areas for future work including investigating whether there are specific services for which decentralized provision has a particularly strong impact on political rent extraction and understanding the channels through which decentralization succeeds in keeping corruption in check

externalities vs internalities a model of political integration abstract decentralized government leads to inter regional externalities whereas an integrated jurisdiction solves the externality problem centralized government entails other costs in particular a neglect for minority interests the paper models formally the trade off between these two forces in determining the optimum as well as the equilibrium design of jurisdictions both the relative size of regions and the distribution of tastes are shown to be important parameters of the problem

accountability and decentralisation in government an incomplete contracts model this paper approaches the question of the appropriate level of decentralisation of power in government as a problem in the allocation of control rights under incomplete contracts the model of the paper compares allocations of power to local central and regional government as alternative means of motivating governments to act in the interests of citizens centralisation allows benefits from policy coordination but has costs in terms of diminished accountability which can be precisely defined as the reduced probability that the welfare of a given region can determine the re election of the government the model is extended to allow for conflicts of interest within regions and externalities between central and local governments in a federation it is also applied to determining levels of fiscal transfer between localities and to circumstances where governments may act as leviathans appropriating resources for their own use

baby booms and drug busts trends in youth drug use in the united states 1975 2000 are there agglomeration economies in crime the positive correlation between city size and crime rates is well known this paper establishes a positive relationship between youth cohort size and marijuana use rates it further demonstrates a negative association between youth cohort size and marijuana prices youth drug possession arrest rates and both overall and youth sales arrest rates cohort size affects demand by lowering possession arrest probabilities but this factor explains less than 10 percent of the relationship the main effect shown here accounting for at least a quarter of the relationship is on the supply of marijuana larger youth cohorts yield thicker drug markets that through lower sales arrest risk and informational economies generate cost savings in drug distribution

incentives and optimal size of local jurisdictions abstract a model of optimal territorial decentralization is presented in which smaller local governments have an informational advantage concerning public goods production costs and the central government has imperfect information on spillover effects induced by local projects the attention is focused on the optimal size of local entities and on the shape of transfer schedules from the central government to local jurisdictions the optimal territorial organization is a compromise between small jurisdictions so as to benefit from the geographical proximity effect on information and large entities in which spillover effects are more easily internalized by means of linear or non linear taxation schemes implemented by the centre

what do parents value in education an empirical investigation of parents revealed preferences for teachers this paper examines revealed preferences of parents for their children s education using parent requests for individual elementary school teachers and information on teacher attributes including principal reports of teacher characteristics that are typically unobservable on average parents strongly prefer teachers whom principals describe as good at promoting student satisfaction though they also value teacher ability to raise academic achievement these aggregate effects mask striking differences across schools families in higher poverty schools strongly value student achievement and appear indifferent to the principal s report of a teacher s ability to promote student satisfaction the results are reversed for families in wealthier schools

modeling the dynamics of chinese spot interest rates using the daily data of chinese 7 day repo rates from january 1 1997 to december 31 2008 this paper tests a variety of popular spot rate models including single factor diffusion garch markov regime switching and jump diffusion models we document that chinese spot rates are subject to both market forces and administrative forces garch regime switching and jump diffusion models capture some important features of the dynamics of chinese spot rates but all models under study are overwhelmingly rejected we further explore possible sources of model misspecification using diagnostic tests

decentralization and the productive efficiency of government evidence from swiss cantons advocates of fiscal decentralization argue that among other benefits it can increase the efficiency of delivery of government services this paper is one of the first to evaluate this claim empirically by looking at the association between expenditure decentralization and the productive efficiency of government using a data set of swiss cantons we first provide careful evidence that expenditure decentralization is a powerful proxy for legal local autonomy further panel regressions of swiss cantons provide robust evidence that more decentralization is associated with higher educational attainment we also show that these gains lead to no adverse effects across education types but that male students benefited more from educational decentralization closing for the swiss case the gender education gap

on the number and size of nations this paper studies the equilibrium determination of the number of countries in different political regimes and in different economic environments with more or less economic integration we focus on the trade off between the benefits of large jurisdictions and the costs of heterogeneity of large and diverse populations our model implies that i democratization leads to secessions ii in equilibrium one generally observes an inefficiently large number of countries iii the equilibrium number of countries is increasing in the amount of economic integration

distributive politics and the costs of centralization this paper studies the choice between centralization and decentralization of fiscal policy in a political economy setting with centralization regional delegates vote over agendas comprising sets of region specific projects the outcome is inefficient because the choice of projects is insufficiently sensitive to within region benefits the number of projects funded may be non monotonic in the strength of project externalities the efficiency gains from decentralization and the performance of constitutional rules such as majority voting which may be used to choose between decentralization and centralization are then discussed in this framework weaker externalities and more heterogeneity between regions need not increase the efficiency gain from decentralization

yardstick competition in intergovernmental relationships theory and empirical predictions abstract we review yardstick competition theory as applied to fiscal choices in the intergovernmental context we show that the theory is consistent with opposite results concerning neighbouring governments fiscal behaviour and discuss some empirical implications