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There is much evidence against the so-called too big to fail hypothesis in the case of bailouts to sub-national governments. We look at a model where districts of different size provide local public goods with positive spillovers. Matching grants of a central government can induce...
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-specific public goods out of two complementary district-specific inputs. We compare equilibria in non-cooperative decentralization and … centralization welfare-dominates decentralization in most institutional settings and for a wide range of parameters, yet we can also … identify necessary and sufficient conditions for decentralization to welfare-dominate centralization. The setup features three …
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