Revisiting the decentralization theorem: on the role of externalities

Arbeitspapier

The “Decentralization Theorem” (Oates, 1972) is central to the discussion of fiscal federalism. We revisit the role of consumption spillovers in evaluating the merits of (de)centralization. Unlike the general prediction, a higher degree of spillovers may reduce the difference in utility of centralization and decentralization. The non-monotonicity result relates to the difference in expenditures on public consumption. Provided decentralized choices yield higher levels of public expenditure, a rise in the amount of spillovers allows residents to enjoy larger gains in public consumption (and thereby utility) under decentralization relative to centralization.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 2128

Classification and Topics

• Classification: Wirtschaft ; Structure and Scope of Government: General ; Fiscal Policies and Behavior of Economic Agents: General ; State and Local Government; Intergovernmental Relations: General
• Subject: federalism ; decentralization theorem ; externality ; policy uniformity ; Finanzföderalismus ; Externer Effekt ; Dezentralisierung ; Öffentliches Gut ; Gesamtwirtschaftlicher Konsum ; Spillover-Effekt ; Föderalismus ; Wohlfahrtstheorie ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Koethenbuerger, Marko
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2007

Further information

• Handle: http://hdl.handle.net/10419/26173
• Last update: 10.03.2025, 11:42 AM CET