A EUROPEAN STATE - LESSONS FROM EXISTING FEDERATIONS DOES CENTRALIZATION INCREASE THE SIZE OF GOVERNMENT

Are fiscal programs larger or smaller if they are run centrally, rathe r than locally, in a prospective federation. We abstract completely fr om well-understood economic issues and focus instead on the political effects of centralization. For fiscal programs with benefits broadly s pread in the population - such as redistributive transfer schemes, soc ial insurance and general government consumption - centralization chan ges the coalition of voters who favor a large program in a direction t hat depends on the nature of the redistributive instrument. For fiscal programs with localized benefits - such as provision of local public goods - centralization creates opportunities for rent-seeking, which i ncreases the size of government.