This paper surveys the theoretical and empirical research on the efficient assignment of policy tasks to different levels of government and applies the results on the delimitation of competences within the European Union. The main results are: (i) A precise derivation of an optimal degree of...

Based on a unique data set on Russian city budgets, this paper shows that revenue sharing between regional and local governments provides local governments with no incentive to increase tax base or provide public goods. Any change in local government’s own revenues is almost entirely offset by...

The optimal degree of decentralization depends on the importance of inter-state externalities of local policies. We show that inter-state externalities are determined by the spatial distribution of interest groups within the country. Interest groups who have multi-state scope internalize...