Decentralization and electoral accountability: incentives, separation and voter welfare.” CEPR Discussion Paper 5125

This paper studies the relationship between \u85scal decentralization and electoral accountability, by analyzing how decentralization impacts upon incentive and selec-tion e¤ects, and thus on voter welfare. The e¤ect of \u85scal centralization on voter welfare works through two channels: (i) via its e¤ect on the probability of pooling by the bad incumbent; (ii) conditional on the probability of pooling, the extent to which, with centralization, the incumbent can divert rents in some regions without this being detected by voters in other regions (selective rent diversion). Both these e¤ects depend on the information structure; whether voters only observe \u85scal pol-icy in their own region, in all regions, or an intermediate case with a uniform tax across all regions. More voter information does not necessarily raise voter welfare, and under some conditions, voter would choose uniform over di¤erentiated taxes ex ante to constrain selective rent diversion