A 1999 reform allowed Italian Mayors to partially substitute a more accountable source of tax revenue (the property tax) with a less transparent one (a surcharge on the personal income tax). Theoretical analysis suggests this should give incompetent Mayors a less costly way to hide themselves,...

I investigate consumption smoothing (sensitivity) under a balanced budget rule in Swedish municipalities. In general, I find Swedish municipalities to be highly consumption sensitive during the time period 2001-2011 when the BBR was in place. A one percentage increase in predicted current...

This paper studies the efficiency of decentralized leadership in federations where selfish regional governments provide regional and federal public goods and the benevolent central government implements interregional earmarked and income transfers. Without residential mobility, unlimited...

This paper investigates how the abolishment of a ban on tuition fees affects the quality of higher education with centralized and decentralized decision making. It is shown that a marginal introduction of tuition fees fully crowds out public funds under centralization, whereas educational...

This paper analyzes the relationship between the size of an economic union and the degree of policy centralization. We consider a political economy setting in which elected representatives bargain over the degree of centralization within the union. In our model strategic delegation affects the...

Heterogeneous countries may rationally choose to form a currency union first, and a fiscal union later. Taking into account the sovereignty loss involved in the formation of a fiscal union, we find reasonable conditions on the determinants of volatility for the currency and then fiscal...

In a federation with decentralized leadership, many regional governments provide multiple types of public goods and the center implements interregional income transfers. The symmetric perfect equilibrium under unlimited decentralized leadership is inefficient because regional public goods are...

This paper empirically tests whether the soft budget constraint is caused by a dynamic commitment problem, i.e., the inability of a supporting organization to commit itself not to extend more resources ex post to a budget-constrained organization than it was prepared to provide ex ante. It uses...