The paper presents a positive model of policy formation in federal legislatures when delegates engage in the strategic exchange of policy-relevant information. Depending on the type of policy under consideration, communication between delegates generally suffers from a bias that makes truthful communication difficult and sometimes impossible. This generates inefficient federal policy choices that are often endogenously characterized by overspending, universalism, and uniformity. Building on these findings, I develop a theory of fiscal (de-)centralization, which revisits the work of Oates in a world of incomplete information and strategic communication. Empirical results from a cross section of US municipalities are consistent with the predicted pattern of spending.
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Journal of Political Economy
One of the oldest and most prestigious journals in economics, the Journal of Political Economy has since 1892 presented significant research and scholarship in economic theory and practice.