Elections and de facto expenditure decentralization in Canada
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Elections and de facto expenditure decentralization in Canada Mario Jametti1 · Marcelin Joanis2 Received: 7 December 2018 / Accepted: 24 July 2020 / Published online: 1 September 2020 © Springer-Verlag GmbH Germany, part of Springer Nature 2020
Abstract This paper empirically investigates the underlying determinants of the respective roles of different levels of government in expenditure functions, guided by recent theoretical developments on the political economy of partial expenditure decentralization. We adopt a theoretical framework in which the degree of expenditure decentralization is endogenous and depends, in equilibrium, on the relative political conditions prevailing at each level of government. Consistent with the model’s predictions, empirical results from a panel of Canadian provinces show that the share of total expenditure in a province assumed by the provincial government increases with the electoral strength of the provincial government and decreases with the electoral strength of the federal government, in addition to being affected significantly by the partisan affiliation of both levels of government. A series of alternative empirical specifications, including an IV regression exploiting campaign spending data, are presented to assess the robustness of these results. Keywords Fiscal decentralization · Fiscal federalism · Partial decentralization · Elections JEL Classification R50 · H77 · D72 We are deeply indebted to Alexandre Genest for his high quality updating work on the database. For their comments on earlier drafts, we thank Toke Aidt, Jan Brueckner, Tom Crossley, Grégoire Rota Graziosi and Mark Schelker, in addition to seminar and session participants at WZB Berlin, Koç University (Istanbul), the JMA, the IIPF, the CEA and the SCSE. Financial support from the Swiss National Science Foundation (Grant Sinergia - 147668 and Grant 159348) and Québec’s FRQSC is gratefully acknowledged. All remaining errors are our own. * Marcelin Joanis [email protected] Mario Jametti [email protected] 1
Institute of Economics (IdEP), Università della Svizzera italiana, CESifo, Via G. Buffi 6, 6904 Lugano, Switzerland
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Polytechnique Montréal, C.P. 6079, succ. Centre‑ville, Montréal, QC H3C 3A7, Canada
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M. Jametti, M. Joanis
1 Introduction Countries around the world have actively engaged in fiscal decentralization in recent decades, from European countries dealing with autonomist movements (e.g. in Scotland and Catalonia) to developing countries seeking more efficient public policies.1 It is well known that while decentralization has many benefits, including the ability to match local policies to local preferences,2 it may also generate problems of its own. For instance, the so-called Second Generation of fiscal federalism theoretical models have deepened our understanding of the potential role that political economy considerations can play as determinants of the economic performance of decentralized systems (Weingast 2009; Oates 2005). One area of investigatio
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