Abstract
Intergovernmental competition can enhance efficiency. Centralization of government expenditures inhibits intergovernmental competition because it makes governments more homogeneous, and so cartelizes local governments. Cartelization reduces Tiebout competition, and limits benchmark competition in which one government’s performance can be compared with neighboring governments. Measuring fiscal centralization as the ratio of local to state and local government expenditures within the state, the evidence shows that more fiscal decentralization is associated with higher levels of state per capita income. Cartelization of local governments negatively impacts income.
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The authors gratefully acknowledge helpful comments from James Gwartney and participants at the Florida State University conference on Public Choice in a Local Government Setting.
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Holcombe, R.G., Williams, D.W. The cartelization of local governments. Public Choice 149, 65 (2011). https://doi.org/10.1007/s11127-011-9825-8
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DOI: https://doi.org/10.1007/s11127-011-9825-8