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Political centralization and government accountability

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Abstract

This paper explains why decentralization can undermine accountability and answers three questions: what determines if power should be centralized or decentralized when regions are heterogeneous? How many levels of government should there be? How should state borders be drawn? We develop a model of political agency in which voters differ in their ability to monitor rent-seeking politicians. We find that rent extraction is a decreasing and convex function of the share of informed voters, because voter information improves monitoring but also reduces the appeal of holding office. As a result, information heterogeneity pushes toward centralization to reduce rent extraction. Taste heterogeneity pulls instead toward decentralization to match local preferences. Our model thus implies that optimal borders should cluster by tastes but ensure diversity of information. We also find economies of scope in accountability that explain why multiplying government tiers harms efficiency. A single government in charge of many policies has better incentives than many special-purpose governments splitting its budget and responsibilities. Hence, a federal system is desirable only if information varies enough across regions.

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  • Federico Boffa & Amedeo Piolatto & Giacomo A. M. Ponzetto, 2011. "Political centralization and government accountability," Economics Working Papers 1335, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 2015.
  • Handle: RePEc:upf:upfgen:1335
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    More about this item

    Keywords

    Federalism; Government Accountability; Imperfect Information; Interregional Heterogeneity; Elections.;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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