Resource title

Revisiting the decentralization theorem: on the role of externalities

Resource image

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Resource description

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.

Resource author

Marko Koethenbuerger

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/26173

Resource license

Adapt according to the presented license agreement and reference the original author.