DP2495 Centralized versus Decentralized Provision of Local Public Goods: a Political Economy Analysis

Author(s): Timothy J. Besley, Stephen Coate
Publication Date: July 2000
Keyword(s): Decentralization, Distributive Politics, Local Public Goods
JEL(s): H40, H70, P51
Programme Areas: Public Economics
Link to this Page: http://www.cepr.org/pubs/dps/DP2495

This paper takes a fresh look at the trade-off between centralized and decentralized provision of local public goods. The point of departure is to model a centralized system as one in which public spending is financed by general taxation, but districts can receive different levels of local public goods. In a world of benevolent governments, the disadvantages of centralization stressed in the existing literature disappear, suggesting that the case for decentralization must be driven by political economy considerations. Our political economy analysis assumes that under decentralization public goods are selected by locally elected representatives, while under a centralized system policy choices are determined by a legislature consisting of elected representatives from each district. We then study the role of taste heterogeneity, spillovers and legislative behaviour in determining the case for centralization.