IPD AI

Some Notes on Decentralization and Service Delivery

10/29/2001
Working Paper

This short note asks where support for decentralization of taxation and spending decisions should come from in an economy with both inter- and intra-regional inequality. If an informational advantage makes local governments more efficient spenders, it follows that decentralization will imply higher taxes, ceteris paribus. Individual support for decentralization will thus depend on both individual and mean regional wealth levels, as well as on intra-regional inequalities.

Support for centralized decision-making (which implies lower taxes) will rise with wealth. It declines with the relative mean wealth level of a person’s region (to avoid redistribution to other regions). For the rich, it rises with the inequality level of their own region (to prevent the local median voter from demanding high taxes).