T. Persson et G. Tabellini, A EUROPEAN STATE - LESSONS FROM EXISTING FEDERATIONS DOES CENTRALIZATION INCREASE THE SIZE OF GOVERNMENT, European economic review, 38(3-4), 1994, pp. 765-773
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.