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In the present paper we analyse for the first time as far as we know, the ancient Greek regional proto-federations, of free-democratic city-states. We examine their political institutions and policies, like common defense and external policy, military organization, representative federal bodies like popular assemblies, parliament, generals as military and political commanders, federal finance ministers etc., as well as their economic institutions and policies: Common currency, federal budget and federal revenues. We address in more detail as a case study the Aetolian Federation (Greek: Sympolitiae). Lastly, we compare this particular proto-federation with some of today's federal states and the European Union (EU) and conclude that in some respects the proto-federation was more advanced than the EU, and thus can serve as a benchmark in addressing current European issues. Our main findings indicate that the Aetolian league, in accordance to its regional neighbor, the Achaean League had managed to establish a variety of institutions and mechanisms of governance that secured a satisfactory level of 'balanced' development to its city-state members under a Pareto efficiency perspective. The Aetolian League also achieved an ideal balance between direct and indirect (representative) democracy, an issue that is of major importance for the further EU integration. To achieve this, it established a system of a cumulative sum referendum process which we nominate, 'the Aetolian and Achaean cumulative model of governance'. We argue that this model could offer reliable and stable solutions even in modern EU decision-making processes, when complex issues are difficult to reach in common outcomes. It seems that the Aetolian Confederation had also managed to achieve a perfect combination of a strong institutionalized central government under a democratic profile and attitude. In addition, we argue that the system of monetary policy that comprised by the parallel usage of both local and federal coins that used by the city-state members of the Aetolian Confederation, might be a prodigal example of how to surpass the negative effects of today's eurocrisis. Finally, we argue that the military organization of the League, could offer some ideas of how to create a would-be Federal Pan-European Armed Forces under the aegis of the EU.

Empirical models of retrospective voting primarily employ standard monetary and financial indicators to proxy for voters’ utility and to explain voters’ behavior. We show that subjective well-being explains variation in voting intention that goes beyond what is captured by these monetary and financial indicators. For example, individuals who are satisfied with their life are 1.6% more likely to support the incumbent; by contrast, a 10% increase in family income leads to a 0.18% increase in an individual’s support of the incumbent. We use difference-in-differences analysis to identify how voter intention is affected by a negative shock to well-being: the death of a spouse. Individuals who experience the death of a spouse are around 10% less likely than those in the control group to support the incumbent. The results hold even if elected officials’ policies (health care, social welfare) cannot reasonably be blamed for the death.

Economic models of Fiscal Federalism, according to different settings, are generally linear and static, offering unique and deterministic solutions starting with simplifying assumptions. This paper rises from the idea to investigate how the decision-makers, abandoning their traditional economic models and focusing, instead, the attention on innovative components of evolutionary economics, can achieve better performance results, to organize and to optimize an economic system based on Fiscal Federalism. For this purpose, Fiscal Federalism must be understood as a dense network of economic relationships between different complex adaptive and co-evolving systems, the jurisdictions, linked by strong interdependencies. A better understanding of the links between interdependence will be provided by the Kauffman’ NK-model. The relevance of the NK-model in the study of economic organizations has been detected several times in the literature. These studies, however, neglect the problem of co-evolution, which instead underpins this paper.

The empirical literature investigating the role of key features of local governments regarding decisions on consolidation tends to use a dummy dependent variable that takes 1 if both adjacent local governments decide to merge and 0 if one of them does not approve consolidation. Under this estimation method, however, it is difficult to know which governments refused to consolidate, as consolidation was not realized. The current study empirically tests the effects of economies of scale, population size, heterogeneity of preferences, and financial factors on municipal preferences for consolidation. It uses voting data from Japanese local referenda to identify preferences of specific individual municipalities, thus allowing a richer examination of local government behavior. The results obtained herein are as follows. Municipalities that could enjoy large economies of scale from consolidation prefer consolidation, while large and small municipalities are likely to merge. Moreover, municipalities receiving large unconditional grants from the central government are unlikely to merge.

Trust in public institutions and public policies are generally perceived as a precondition for economic recovery in times of recession. Recent empirical evidence tends to find a positive link between decentralization and trust. But our knowledge about whether decentralization – through increased trust – improves the perception of the delivery and effectiveness of public policies is still limited. In this paper we estimate the impact of fiscal and political decentralization on the perception of the state of the education system and of health services, by using the 2002, 2004, 2006 and 2008 waves of the European social survey. The analysis of the views of 160,000 individuals in 31 European countries indicates that while the effect of fiscal decentralization on the perception of the state of the health and education system is unambiguously positive, political decentralization affects citizen’s satisfaction with education and health delivery in different ways. The influence of political decentralization, however, is highly contingent on whether we consider the capacity of the local or regional government to exercise authority over its citizens (self-rule) or to influence policy at the national level (shared-rule).

The effectiveness of public funds in increasing public employment has long been a question on public and labor economists’ minds. In most federal countries local governments employ large fractions of the working population, meaning that a tool for stimulating local public employment can substantially affect the overall unemployment level. This paper asks whether general grants to lower-level governments have the potential of doing so. Applying the regression kink design to the Swedish grant system, we are able to estimate causal effects of intergovernmental grants on personnel in different local government sectors. Our robust conclusion is that personnel in the central administration increased substantially after a marginal increase in grants, but that such an effect was lacking both for total personnel and personnel in child care, schools, elderly care, social welfare and in technical services. We suggest several potential reasons for these results, such as heterogeneous treatment effects and bureaucratic influence in the local decision-making process.

Magyarországon immár lezártnak tekinthető a helyi önkormányzati finanszírozási rendszer 1990-2012 közötti átalakítása, ami tanulságos példája a pénzügyi föderalizmus gyakorlatba való átültetésének. A rendszer átalakítása mellett sokan települési csődökkel érveltek, pedig a korábbi gazdasági szabályozó mechanizmus nem omlott össze. Ellenkezőleg: a decentralizáció kiépítésének végig jó alapjául szolgált, viszont akár tankönyvi példát is nyújt arra, hogy a helyi közszolgáltatások célszerű megszervezéséhez szükséges integrációk kialakítása és finanszírozási tartalmuk felépítése nélkül a rendszer csak korlátozottan működhet. Az összevonások, valamint a feladatok nagyobb egységekbe telepítése előtt közigazgatás-politikai korlát állt, amelyet önmagában a pénzügyi szabályozással nem lehet átlépni. E tehetetlenségi hatás azonban elegendő ürügyként szolgált a helyi-területi feladattelepítési és finanszírozási rendszer gyökeres átrendezéséhez. Journal of Economic Literature (JEL) kód: H70, H77, H11., Two decades of decentralization in Hungary present a good case of how the administrative and regulatory environment should (or should not) be adjusted to fiscal conditions. In the early transition years, fiscal decentralization was followed by political decentralization and transfer of public functions to municipal level, but this model did not meet all the requirements for an effective, efficient system of inter-governmental finances. Second-generation decentralization theories showed that intergovernmental fiscal relations needed to be matched with appropriate political and administrative mechanisms. The conflicts in Hungary centred round the optimal LGO size: institutional forms were not adjusted to the requirements of efficient local service provision. The paper uses a disaggregated database of local-government revenues and expenditures to present the inability of small municipalities to deliver the mandatory and merit-based service assigned to all; unmanageable inequalities evolved in local revenue-raising potential; disparities between assignment of services and own revenues led to targeted intervention through the transfer system; local finances were heavily influenced by political cycles. Since 2013, all these factors have prompted extreme re-centralization without consideration of alternative options for establishing larger, integrated municipal structures. The model will survive while this new system remains financially viable, but any fiscal difficulties at local or national level will again raise pressure to adjust to the fiscal and political components of a system that is properly decentralized.

This paper studies the policy impact of civil service regulations, exploiting reforms undertaken by US state governments throughout the twentieth century. These reforms replaced political patronage with a civil service recruited based on merit and protected from politics. I find that state politicians respond to these changes by spending relatively less through the reformed state-level bureaucracies. Instead, they allocate more funds to lower level governments. The reallocation of expenditures leads to reduced long-term investment by state governments. (JEL D73, H72, H77, H79)

This paper puts forward a framework for evaluating the effects of governmental decentralization on the shadow economy and corruption. The theoretical analysis demonstrates that decentralization exerts both a direct and an indirect impact on the shadow economy and corruption. Firstly, decentralization helps to mitigate government-induced distortions, thus limiting the extent of corruption and the informal sector in a direct way. Secondly, in more decentralized systems, individuals have the option to avoid corruption by moving to other jurisdictions, rather than going underground. This limits the impact of corruption on the shadow economy and implies that decentralization is also beneficial in an indirect way. As a result, our analysis documents a positive relationship between corruption and the shadow economy; however, this link proves to be lower in decentralized countries. To test these predictions, we developed an empirical analysis based on a cross-country database of 145 countries that includes different indexes of decentralization, corruption and shadow economy. The empirical evidence is consistent with the theory. Results are robust and significant even after controlling for the endogeneity bias.

This study makes a contribution in two basic areas. First, it sets up a model which combines efficiency as well as political economy aspects in explaining the degree of fiscal decentralization. It innovates in making explicit the benefits from better informed politicians and policy makers (Von Hayek effect) and the potential cost push effect on public services and public goods (Scale Effect) resulting from decentralization. It takes advantage of previous literature in recognizing the extent of the ideological distance between the local and the national median voter as a third factor worth considering in the social cost benefit analysis of decentralization. Second, the aforementioned effects are put into the context of specific functional areas of government, each of them having a particular set of characteristics which lead to a different degree of decentralization. The net outcome will be the result of combining the rent seeking orientation of the central government with the particular median voter demand for each different public good.

We study the fiscal consequences of municipal mergers by making use of a largescale merger reform in the German federal state of Brandenburg. This reform, which was implemented from 2001 to 2003, led to a substantial reduction in the number of municipalities. Individual mergers were heterogeneous across a number of dimensions, which allows us to contribute to the literature by exploring the consequences of different types of mergers within the same institutional setting. Focusing in particular on the distinction between compulsory and (semi-) voluntary mergers, we implement a difference-in-difference design with panel data from 1995-2010 at the level of post-merger municipalities. We find significant reductions in (administrative) expenditures after compulsory mergers. Voluntary mergers, on the other hand, have no effect on expenditures. We also show that the effects of voluntary and compulsory mergers vary according to further (secondary) characteristics of a merger.

We revisit the classic problem of tax competition in the context of federal nations, and derive a positive theory of partial decentralization. A capital poor median voter wants to use capital taxes to provide public goods. This results in redistributive public good provision. As a consequence, when all public goods are provided by the central government, capital taxes and public good provision are high. The expectation of high capital taxes, however, results in a small capital stock which lowers returns to redistribution. The median voter would therefore like to commit to a lower level of capital taxes. Decentralization provides such a commitment: local governments avoid using capital taxes due to the pressure of tax competition. We therefore obtain that the median voter favors a partial degree of decentralization. The equilibrium degree of decentralization is non-monotonic in inequality, increasing in the redistributive efficiency of public good provision, and decreasing in capital productivity. When public goods are heterogeneous in their capacity to transfer funds, all voters agree that goods with high redistributive capacity should be decentralized.

In this paper we use a simple bureaucracy model of fiscal illusion to analyze the impact of intergovernmental grants on the cost efficiency of local jurisdictions. We find that a higher degree of redistribution within a system of fiscal equalization or an increase in the amount of grants received by a local jurisdiction leads to an extension of organizational slack or X-inefficiency in that jurisdiction. This theoretical prediction is tested by conducting an empirical analysis using a broad panel of German municipalities. The results of the empirical analysis are consistent with the theoretical findings and therefore support the existence of a negative incentive effect of intergovernmental grants on local authorities' cost efficiency.

This short paper starts from two contributions written by economists in late 2007 and early 2008 which plead for : (i) improved public governance in French-speaking Belgium, and (ii) « responsible solidarity » within Belgium, together with improved coordination of policies. The paper argues that these two messages are complementary and discusses some specifics of a mechanism meant to incentivize regional convergence in employment rates across Belgian regions, noting that such a convergence would basically eliminate the fiscal transfers between regions. JEL Codes – H11, H77, I28.

In this paper we focus on the relationship between fiscal decentralization and government quality. In a sample of 29 developing and developed countries over the period 1984-1997, fiscal decentralization has a positive effect on institutional quality but this effect diminishes as countries become wealthier. Moreover, the positive effect of fiscal decentralization on government quality is reduced by electoral and decision-making decentralization in poor and medium income countries whereas these forms of decentralization seem to improve the impact of fiscal decentralization on government quality in rich countries.

A cikk az önkormányzatok utóbbi években zajló atipikusnak tekinthető eladósodásából kiindulva elemzi a magyarországi önkormányzati rendszert. Az atipikus eladósodás egy szimptómája az atipikus önkormányzatnak. A szerző állítása szerint ez a jelenség a magyar önkormányzati modell szétesésének újabb tényezője, és egyben okot szolgáltat újabb változtatásokra. A cikk először a "magyar önkormányzati modell" főbb jellemzőit mutatja be, különös figyelmet fordítva a pénzügyi architektúrára. Ezt követően a szektor eladósodásának a költségvetés fenntarthatóságára gyakorolt hatását elemzi. Kitér a probléma rövid távú, az adott modell keretei közötti kezelésének lehetőségére, rámutatva, hogy az eladósodás a paradigmatikus reform újabb akadályozó tényezőjének tekinthető.Végül, két lehetséges forgatókönyvet bemutatva, felvázolja a korszerűsítés rendszerszerű megoldását. Journal of Economic Literature (JEL) kód: G28, G38, H11, H70, H77, The paper sets out to examine the local-government system in Hungary, starting from an atypical pattern of indebtedness among LGOs in recent years. One symptom of the atypical indebtedness is atypical local government. It argues that this as another factor behind the break-up of the Hungarian local-government model and also a cause for further changes. Having presented the main features of this Hungarian local-government model, the author draws attention to the financial structure, before analysing the effect of the indebtedness on the sustainability of the budget. The paper looks at the possibility of han-dling the problem in the short term, within the frames of the existing model, but points out that the indebtedness is a further obstacle to paradigmatic reform. Finally it advances two possible scenarios for a systemic solution to modernization.

What is it about federal governance that makes it so attractive to economists, political philosophers and legal scholars and is there any evidence that would suggest all this attention is warranted? Proponents see federalism as a means to more efficient public and private economies, as the foundation for increased political participation and democratic stability and as an important check on governmental abuses of personal rights and liberties. This study provides a working definition of federal governance and classifies a sample of 73 countries as either a constitutionally based federal democracy, an administratively based federal democracy, a unitary democracy, a federal dictatorship or a unitary dictatorship. Governance is then related to 11 measures of economic, democratic, and rights performance. Three conclusions follow. First, decentralized policy-making does have a unique contribution to make to a society's ability to enforce property rights, to protect political and civil rights, and then because of such rights protections, to enhance private sector economic performance. Second, while policy decentralization is the key to federalism's strong rights and economic performance and can be achieved within a unitary government by fiat, constitutionally established provincial (or state) governments provide an extra and important protective barrier for policy decentralization. Federal institutions protect policy decentralization, and policy decentralization provides federalism's valued outcomes. Third, federalism needs democracy; there is no evidence that adding policy decentralization or provinces to a dictatorship significantly improves a dictatorship's economic or rights performance. (JEL codes: H11, H77, H70) Copyright , Oxford University Press.

We study the political economy of policy innovations during the U.S. welfare reform in 1996. Specifically, we investigate how reputation concerns among governors influence the decision to experiment with welfare policies. In line with a political agency model, our empirical results suggest that governors with high reputation among the electorate are less likely to experiment with welfare policies than governors with low reputation. Yet, governors with high reputation who are less concerned about reelection actually experiment more than governors striving for reelection. Overall, our findings imply that reelection concerns may inhibit innovation in the public sector.

This paper analyze the structure of the standard fiscal needs (SFN) of local allocation tax grants in Japanese prefectural data. The previous works on SFN reported that the scale effect of SFN (a U shaped per capita SFN curve) are observed in Japan. We mainly showed the per capita SFN has the structure of cubic function for the population term. The per capita SFN of small and large prefectures increase more rapidly than ordinary prefectural governments.

The aim of the paper is to develop a procedure that allows policy makers to make an ex-ante assessment of a general compulsory amalgamation policy, providing quantitative indications about the possible financial effects. The amalgamation of small municipalities is a widespread practice all over the world. This policy is based on the assumption that local public service provision is characterized by economies of scale and economies of scope. However, population size is not the only determinant of economies of scale, which depend on many other factors. For these reasons, the expected effects of any amalgamation program are uncertain, and ex-post empirical analyses are unable to offer unambiguous indications to policy makers since all programs differ. After a brief discussion of the relevant issues concerning amalgamation, we present the procedure used to simulate the economics and administrative effects of a general compulsory amalgamation policy. The procedure is tested with reference to the municipalities of Veneto, a region of Italy and we provide the results of a number of simulations under alternative amalgamation policies. The main result is that amalgamation policies based only on the a priori rule that small municipalities should merge may be very inefficient because the expenditure reduction following an amalgamation policy may depend to a considerable extent on other territorial and socio-economic characteristics of the municipalities involved.

We study political determinants of municipality amalgamations during a boundary reform in the German state of Brandenburg, which reduced the number of municipalities from 1,489 to 421. The analysis is conducted using an extensive data set on the political decision makers as well as fiscal and socio-economic variables on the level of the individual municipality and on the level of individual mergers. We ask whether party representation in the town council influences the merger decision. To identify the effect, we follow a dual approach and make use of different stages in the reform process. First, municipalities were initially free to choose partners. In a later phase of the reform the state legislature forced municipalities to amalgamate. We can, thus, compare voluntary to forced units. Second, we simulate potential mergers from the map of municipalities and compare voluntary mergers to those simulated units. Both approaches show that political representation mattered significantly during the voluntary stage of the merger reform.

The aim of this study is to empirically assess the existence of the BARS curve (Barro, Armey, Rahn, and Scully), as well as the relationship between public expenditure and decentralization, for Italian regions in the 1997-2009 period. Using panel data methodologies, we inspect the nexus between Regional government size (measured by the share of public expenditure on GDP) and the economic growth rate. The main results are twofold. First, when the degree of decentralization is reasonably low (below the 31% of expenditure decentralization), a BARS curve has been successfully discovered, and the optimal government size remains almost constant, assuming a value close to the 52%. The second one concerns the fact that, even though the optimal government size is almost constant, decentralization has a positive effect on economic activity. Finally, decentralization attenuates the negative impact of sub-optimal expenditure policy on growth process. Therefore, our results suggest that decentralization exerts a positive impact on public sector efficiency, contributing to stimulate the income growth.

This paper provides a political-economy explanation of the degree of centralization in economic policy making. To determine which policies are to be centralized, regions select representatives who then negotiate the degree of centralization and the regional cost shares of centrally decided policies. We show that the resulting degree of centralization is suboptimally low. Voters strategically delegate to representatives who are averse to public spending and hence prefer decentralized decisions in order to reduce their region's cost share. When spillovers are asymmetric, strategic delegation is stronger at the periphery than at the center.

This contribution studies the determinants of intermunicipal cooperation for small Hessian municipalities. Existing contributions have highlighted the role of cooperation demand factors, for example scal stress or demographic factors, on the one hand, and transaction cost issues on the other. This study asks how the spatial neighbourhood a ects cooperation decision making taking characteristics of neighbouring municipalities into account (cooperation supply). The study focuses on intermunicipal cooperations in the eld of labor intensive public administration services, for example, management and accounting tasks, personnel administration or civil registry oces. We nd that the main driving forces are scal stress, population growth and size heterogeneity. Neighbourhood-related supply factors areonly weakly signi cant. Cooperation is more likely for municipalities that are part of a set of neighbouring municipalities which are heterogeneous with respect to size.

The theoretical literature on the economics of fiscal federalism has identified several potential effects of government decentralization on economic growth. Much of the traditional literature focuses on the efficiency aspects of a decentralized provision of public services. However, decentralization may also increase growth by raising the ability of the political system to innovate and carry out reforms. On the contrary, some authors argue that decentralization increases corruption and government inefficiency. After a discussion of the theoretical arguments, we provide both a traditional survey and a meta-analysis of the empirical literature on decentralization and economic growth. Based on our survey, we identify open questions and discuss possible ways of answering them.

从地方政府发现和利用经济发展机会的视角出发，考察目前省直管县试点改革中出现的主要扩权模式，提出并论证“省直管县改革是全面直管与省内单列的扩权模式选择”的议题。在动态博弈的框架下分析代理人（县级政府）的最优努力水平和委托人（省级政府）的期望效用，通过对不同扩权模式下省级政府的期望效用进行比较，总结出省直管县改革扩权模式选择的经济学逻辑；并进一步地考虑县级政府之间的异质性和经济关联对省直管县扩权模式选择的影响，总结出省直管县改革扩权模式选择的经济学逻辑。得出如下政策启示：省级政府在进行扩权模式选择时，需因地制宜，综合考虑经济发展机会的期望收益、县级政府之间的异质性和经济关联，以期本文的研究结果为目前正在推行的省直管县改革实践提供理论借鉴。

This paper aims at assessing the impact of fiscal discipline towards sub-national governments on citizens' well-being. We model fiscal discipline by considering the expectations of deficit bailouts by Central Government, and focus on a particular dimension of well-being, namely health outcomes at the regional level. We study then how bailout expectations affect the expenditure for health care policies carried out by Regional Governments: in the presence of opportunistic behaviours by local governments - induced by soft budget constraints - bailout expectations should affect only spending inefficiency, and should not have any real effects on citizens' health. To investigate this issue, we model the efficient use of public resources for health care delivery as an input requirement frontier, and assess the effects of bailout expectations on both the structural component of health spending and its deviations from the best practice. The evidence from a sample of 15 Italian Regions observed from 1993 to 2006 highlights that bailout expectations do not significantly influence the position of the frontier, thus do not affect citizens' health. However, they appear to exert a remarkable impact on excess spending.

This paper uses cross-national data to examine the effects of different dimensions of decentralization on the efficiency of educational policies in OECD countries. The results show that the autonomy of subnational governments, both on the expenditure and revenue sides of their activities, is what really matters in determining the effect of decentralization on educational outcomes. The decision-making autonomy of subnational governments with regard to the regulation and management of the educational system has a significant and positive effect on educational attainment, though this varies with the degree to which subnational governments are held accountable for their taxing decisions. These results are robust to the different analyses conducted, thus corroborating that they are not driven by the potential endogeneity of decentralization policies.

The market metaphor of intergovernmental choice as a spur to efficiency (formalized by Charles M. Tiebout) is often invoked to support the shift away from Washington and toward the states. But the model translates badly to governments; governmental entry and exit is costly. Public-sector co11usion often serves citizens' interests. Heterogeneous mobility distorts the signals sent by interstate migration. And while Tiebout (and followers) condition efficiency predictions on optimal distribution, the U.S. devolution movement coincides with rising inequality and has gone furthest where distribution matters most. The metaphor is misapplied. Devolution will likely do more to enfeeble government than to improve it.

The appropriate federal structure of government is now a policy issue of major debate. This paper identifies three approaches and compares their strengths and weaknesses. Economic federalism recommends the use of competitive communities for the provision of congestible local goods and a strong central government for the provision of pure public goods and spillovers. Cooperative federalism recommends intercommunity agreements; democratic federalism prefers a majority-rule representative legislature. Efficiency will sometimes conflict with other constitutional objectives--political participation and the protection of rights--and compromises will often be required.

Fall, 1997 Journal of Economic Perspectives, Volume 11, Number 4, pp.83-92, Fall 1997 We advance a new perspective in the study of federalism. Our approach views federalism as a governance solution of the state to credibly preserving market incentives. Market incentives are preserved if the state is credibly prevented from compromising on future economic success and from bailing out future failures. The salient features of federalism — decentralization of information and authority and inter-jurisdiction competition — help provide credible commitment for these purposes. In addition, we discuss factors relevant for sustaining federalism.

Following half a century of fiscal activism and federal leadership, the call now is for downsizing the federal budget and a devolution of fiscal responsibilities to states and localities. The call for "federalism," meant to secure a stronger center in James Madison's time, now seeks to decentralize. This paper outlines the main features of fiscal federalism as I see them, sketching a vision which differs in major respects from that offered by the lead paper in this symposium. First I highlight the role of distribution, which I see as a central function. Then, I focus attention on grants-in-aid and their role in the federal system. Finally I consider competition, cooperation, and coordination between jurisdictions.

In recent years, local governments in South Africa have faced daunting challenges, notably significant service delivery backlogs, poor financial management, corruption, and poor capacity due to lack of skills. As a result, numerous municipalities are deemed to be in financial distress, and already questions have been raised concerning their capability to efficiently deliver on expected outcomes on a sustainable basis and to cope with economic shocks. In this context, South Africa has embarked upon a comprehensive review of the local government equitable share (LES) formula which constitutes the main unconditional grant that accrues to municipalities. The objective of this paper is to assess fiscal disparities across municipalities using a comprehensive approach to measuring fiscal capacity. In assessing the overall level of fiscal capacity, the paper uses the Representative Revenue System (RRS) and the Representative Expenditure System (RES) methodologies. To the best of our knowledge, such comprehensive measures of fiscal capacity at the municipal level have yet to be applied in the South African context. Additionally, the contribution of this paper lies mainly in that it provides a more systematic measure of municipal fiscal capacity that should be taken into account in the revision and improvement of the current LES formula to ensure that the LES funds are equitably distributed. Furthermore, an appropriate measure of fiscal capacities across municipalities in South Africa will provide the Municipal Demarcation Board with a tool to re-determine municipal boundaries based on objective and empirical evidence rather than political considerations.

While gerrymandering in developing countries is often pushed by local authorities to secure political advantages, fiscal grants systems under decentralization may also have result in the same. We investigate this issue to identify the correlates of the growth in the number of cities in the Philippines in 2001-2010. Using a panel of municipal-level data, incremental fiscal transfers are found to drive cityhood. Also, political payoffs -- like the incumbent mayor's re-election or having another member of the same political clan elected to the same position -- motivate the creation of new cities. Reforms in the country's fiscal transfer program are suggested.

The aim of this paper is to analyse cross-country differences in the degree of inter-regional redistribution achieved by means of taxes and expenditures in 21 European countries over the period 1995-2009. We rely on a standard approach based on the observation and comparison of both primary and disposable household income at regional scale. Once the redistributive effect in each country is quantified, we try to explain the drivers of cross-country time-series differences. According to our estimates, cross-national standard deviation is significant and much higher than time variation. Secondly, inter-regional redistribution is strongly and positively related to personal redistribution by means of taxes and social benefits in cash; and is negatively related to both the extent of regional disparities in primary income and to the degree of political and fiscal decentralization.

Efforts to maintain balanced budgets lead to substantial pro-cyclicality in states' capital investments, transfers to local governments, and spending in areas like education and transportation. Reliance on volatile revenue sources predicts relatively severe volatility in these expenditures. States with strict balanced budget requirements must restore fiscal balance faster than those without, leading to rescissions during years in which they face unexpected shocks. I find that these rescissions occur disproportionately in areas with readily deferred projects. Evidence points to the relative strength of public sector union groups as a driver of variation in the composition of mid-year rescissions across states.

This paper provides additional insights on the relationship between government size and trade openness using a panel of countries drawn from the World Development Indicators and the Penn World Tables 7.0 from 1962 to 2009. It is shown that the compensation hypothesis proposed by Rodrik (1998) and revisited by Alesina and Wacziarg (1998) and by Ram (2009) cannot be attributed general validity. On the one hand, it is shown that country size is not relevant to determine the sign of the relationship between government size and economic openness, contradicting previous results by Alesina and Wacziarg (1998). On the other hand, the relevance of the cross-country heterogeneity suggested by Ram (2009) to argue in favour of the compensation hypothesis only picks the characteristic of the African countries of being relatively more closed.

Ein optimal ausgestalteter Steuervollzug sollte die gesamtwirtschaftliche Effizienz des Steuersystems sicherstellen. In einem föderalen Staat stellt sich daher auch die Frage, in welchem Verantwortungsbereich die Finanzverwaltung angesiedelt sein sollte, um dieser Funktion möglichst gerecht zu werden. Es wird verdeutlicht, dass es im deutschen Finanzföderalismus unter Berücksichtigung des gegenwärtig geltenden Finanzausgleichsgesetzes einen eindeutigen komparativen Vorteil weder für eine Finanzverwaltung in Verantwortung des Bundes noch für eine solche in Verantwortung der Länder gibt.

This paper argues that high political competition does not necessarily induce policy makers to perform better as previous research has shown. We develop a political economy model and we show that when political competition is tight, and elected politicians can rely on more tax instruments, they will substitute salient taxes with less salient ones, which are not necessarily preferable. These predictions are largely confirmed using a dataset on Italian municipal elections and taxes.

We analyze how (anticipated) changes in the competitiveness of the seats of municipal councilors affect their voting behavior over municipal mergers. The competitiveness of the seats changes because the merger changes the composition of political competitors and the number of available seats in the next election. We use this variation for identification and find that the smaller the increase in the competitiveness of a councilor's seat, the more likely he is to vote for the merger. These effects are not related to the behavioral responses of the voters, but arise from the councilors’ desire to avoid electoral competition.

This is the accepted, refereed and final manuscript to the article Theoretical work based on social identity theory predicts that population diversity undermines redistributive public policies. This article tests this proposition exploiting an exogenous shock in diversity due to Germany's reuni cation. In contrast to previous work on ethno-linguistic or racial heterogeneity, we speci cally analyze religious diversity, which is an increasingly relevant social cleavage in many countries. Our main results corroborate that increasing religious diversity leads to a change in scal policies in Bavarian municipalities over the 1983-2005 period. Moreover, we nd some evidence of declining individual-level local identi cation over the post-reuni cation period, which suggests that the observed scal e ects are indeed linked to the theoretical mechanism of individuals' social identi cation. Finally, we highlight an important mediating role for the democratic process, since the observed scal e ects strengthen considerably following Bavarian municipalities' rst local elections after the reuni cation migration wave (March 1996) and a legal change allowing local referenda on public policies (October 1995). 2, Forfatterversjon

The right way to measure the degree and extent of the different aspects of fiscal decentralization has been a long-debated, yet underdeveloped issue. There has been little consensus on the right approach to developing a single indicator which is sometimes needed to show a general trend in fiscal decentralization and reveal relationship to other variables in empirical studies. In particular, several composite indicators of fiscal decentralization have been proposed, but there are very few attempts to evaluate and compare these measures in terms of implicit biases and different weights between revenue and expenditure decentralization. Critically reviewing and comparing various types of fiscal-relation indicators in a systematic way, this paper proposes two criteria to classify similar-looking composite indicators for fiscal decentralization while it also presents two new composite measures. The new fiscal decentralization indicators are symmetric in terms of the relative effects of revenue and expenditure decentralization on the value of the composite indicators at the same time that they are weighted for/against fiscal gaps and imbalances. It is argued that different composite indicators reflect different perspectives on which aspect of fiscal decentralization is more important and whether a growing fiscal gap means less fiscal decentralization or not.

The low quality of education is a persistent problem in many developed countries. Parallel to in the last decades exists a tendency towards decentralization in many developed and developing countries. Using micro data from the Programme for International Student Assessment (PISA) referred to 22 countries, we test whether there exists an impact of fiscal and political decentralization on student performance in the areas of mathematics, reading skills and science. We observe that fiscal decentralization exerts an unequivocal positive effect on students' outcomes in all areas, while the effect of political decentralization is more ambiguous. On the one hand, the capacity of the subnational governments to rule on its region has a positive effect on students' performance in mathematics. On the other hand, the capacity to influence the country as a whole has a negative impact on mathematics achievement. As a general result, we observe that students' performance in Mathematics is more sensible to these exogenous variations than in Sciences and reading skills.

This paper contributes to an agenda that views the effects of policies and institutional reforms as dependent on the structure of political incentives for national and subnational political actors. The paper studies political incentive structures at the subnational level and the mechanisms whereby they affect national-level politics and policymaking at the national level in Argentina, a highly decentralized middle-income democracy, Argentina. The Argentine political system makes subnational political power structures very influential in national politics. Moreover, most Argentine provinces are local bastions of power dominated by entrenched elites, characterized by scarce political competition, weak division of powers, and clientelistic political linkages. Political dominance in the provinces and political importance at the national level reinforce each other, dragging the Argentine political and policymaking system towards the practices and features of its most politically backward regions.

This paper outlines a dynamic model with three levels of government: federal, state and local in the Stackelberg game structure with the superor government as the leader and all its subordinate governments the followers.It studies the optimal design of block grants and matching grants from both the federal government and the state governments to their numerous subordinate governments respectively as well as the optimal public expendtures and public capital stocks of different levels of government in the long run. Using specific form of utility function, we find that the optimal intergovernmental grants are very different between the level of federal government and state governments.

The paper seeks to determine whether the observation from a constitutional law and public administration perspective, namely that a distinct centralist tendency has become evident in South Africa in recent years, in terms of legislation, policy and practice of government, is borne out by an empirical analysis of fiscal data. An overview of key legislative, policy and operational changes is combined with an investigation of trends of indicators pertaining to intergovernmental fiscal relations. It is established that the South African fi scal scene has, over many decades, been characterised by a steady and gradual reduction of the fiscal autonomy of sub-national governments. Fiscally, South Africa has become more centralised, thus strengthening the de facto erosion of the federal state.Key words: structure of government, intergovernmental fiscal relations, fiscal centralisation, fiscal decentralisation, public economics, sub-national government, local government, local fiscal autonomy, intergovernmental fiscal relations in South Africa

The first voices calling for reforms in public administration began to be heard just 10 years after the formation of the first Basque Government following the restoration of democracy. Since then the programmes for all subsequent legislatures have included a section on the modernisation of the administration. This has given rise to various reform plans, the most significant of which is a report by CORAME («Committee from the Rationalisation and Improvement of Public Administration») dated June 1994, which set out «47 measures for renewing the organisational structure of the government and administration of the Basque Country». This paper presents an exhaustive analysis of the CORAME plan and assesses the process for its implementation and the strategy used, highlighting the reasons why those measures continue to constitute an agenda for reform that remains unimplemented even today. This clarification of the difficulties encountered and the reasons for them provides important lessons for future attempts at reforms.

This paper estimates the effect of political power on tax policies in municipal councils under a proportional election system. The main challenge in estimating the causal effect of parties on policy is to isolate the effect of power from underlying voter preferences and the selection effect of parties. We use an instrumental variable approach where close elections provide the exogenous variation in our variable of interest: voting power. Using data from German municipalities in the state of Bavaria, our estimation results suggest that power does matter. Somewhat surprisingly, the center-left party SPD is found to lower all three locally controlled taxes, whereas The Greens increase both property taxes considerably. These results remain robust across a range of specifications. What is more, the effect of the SPD is confirmed by a simple regression discontinuity estimation of mayors in these local governments.

The number of municipalities in Japan has decreased from 3,232 in 1999 to 1,820 in 2006 because of municipal mergers, called Heisei-no-Daigappei. This paper estimates the effects of municipal mergers in Japan’s local public expenditure. In order to evaluate the expenditure of municipal mergers, our new approach is to apply unique index called financial index classified by similar types. We mainly results the scale effect using panel data on Japanese municipalities and found that municipalities achieved reductions in their total expenditures with mergers. In addition, the expenditure structure is also found to be an inverse U shaped.