DP3585 Government and Cities: Contests and the Decentralization of Decision Making

Author(s): Gil S Epstein, Ira Gang
Publication Date: October 2002
Keyword(s): contests, economic models of political processes, fiscal federalism, intergovernmental relations, interjurisdictional differentials and their effects
JEL(s): D72, H73, H77
Programme Areas: Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3585

Governments do not have perfect information regarding the priorities and the needs of different groups in the economy. This lack of knowledge opens the door for different groups to lobby the government in order to receive the government?s support. We set up a model of hierarchical contests and compare the implications of a centralized allocation process with a decentralized allocation process. We show the potential existence of a poverty trap as a result of fiscal federalism.