CEIS - CENTRE FOR ECONOMICS AND INTERNATIONAL STUDIES

We provide an alternative explanation for the common observation that decentralization works better when the degree of vertical fiscal imbalance is low. When most resources comes from the center, citizens have an incentive to select local politicians with different skills that when resources are produced locally. As an effect, we prove in a career concern model of politics with endogenous candidacy, that tax decentralization may have opposite effects on the selection of politicians and on citizens’ welfare. We test our theory with reference to the Italian decentralization policies of the 90’s at the municipal level, findind strong support for our hypotheses.

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