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Faculty of Economics

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Aidt, T. S.. and Dutta, J.

Fiscal Federalism and Electoral Accountability


Abstract: We study the efficient allocation of spending and taxation authority in a federation in which federal politicians are exposed to electoral uncertainty. We show that centralization may, but need not, result in a loss of electoral accountability. We identify an important asymmetry between positive and negative externalities and show that centralization may not be efficient in economies with positive externalities even when regions are identical and centralization does not entail a loss of accountability. We also show that decentralization can only Pareto dominate centralization in economies with negative externalities.

Keywords: Fiscal federalism, local public goods, externalities, performance voting, turnout uncertainty, electoral accountability

JEL Codes: D72 D78 H41

Author links: Toke Aidt  


Open Access Link:

Published Version of Paper: Fiscal federalism and electoral accountability, Aidt, T. S. and Dutta, J., Journal of Public Economic Theory (2017)

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