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A model of central vs decentralized government: self-interest and mis-allocation in Bolivia

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The recent, much remarked upon decentralization in Bolivia produced four important changes in the nation’s public finances: (1) a sharp fall in the geographic concentration of investment; (2) a sea-change in the uses of investment away from infrastructure towards the social sectors; (3) a significant increase in government responsiveness to local needs; and (4) increased investment in poorer municipalities. Existing theoretical treatments of decentralization cannot account for these phenomena. This paper develops a model of government which relies on political bargaining between municipal representatives and central government agents over the allocation of public resources. By invoking central government self-interest, I can explain the Bolivian experience. Lastly I introduce the concept of residual power, which underpins the model, as key to understanding decentralization. Analyzing the location of residual power in a political system can help cut through the thicket of contradictory claims that fill the decentralization literature.

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en

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application/pdf

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http://eprints.lse.ac.uk/13421/1/LSE_WP02-39_%28LSERO%29.pdf

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