Decentralization is among the most important global trends of the new century, yet there is still no consensus on how to design political institutions to realize its benefits. In this paper, we investigate the political conditions under which decentralization will improve the delivery of public goods. We begin by incorporating insights from political science and economics into a rigorous and formal extension of the “decentralization theorem”. Our extension assumes inter-jurisdictional spillovers and suggests that the interaction of democratic decentralization (popularly elected sub-national governments) and party centralization (the power of national party leaders over subnational office-seekers) will produce the best outcomes for public service delivery. To test this argument empirically, we make use of a new dataset of sub-national political institutions created for this project. Our analyses, which allow us to examine educational outcomes in more than 125 countries across more than 25 years, provide support for our theoretical expectations.
Ronce-Rodriguez, Raul A.; Hankla, Charles R.; Martinez-Vazquez, Jorge; and Heredia-Ortiz, Eunice, "Rethinking the Political Economy of Decentralization: How Elections and Parties Shape the Provision of Local Public Goods" (2012). International Center for Public Policy Working Paper Series. 75.