We investigate which political institutions will improve the delivery of public goods in decentralized systems. We begin with a formal extension of Oates’ influential “decentralization theorem” to include the presence of inter-jurisdictional spillovers. Our new model, which we term the “strong decentralization theorem,” indicates that, when spillovers are present, the impact of decentralization will depend on the structure of a country’s political system. More specifically, our model suggests that the interaction of democratic decentralization (the presence of popularly elected sub-national governments) and party centralization (the power of national party leaders over sub-national office-seekers) will produce the best outcomes. To test this argument empirically, we develop a new dataset of sub-national political institutions. Our analyses, which examine educational and health service delivery in 135 countries across 30 years, provide support for our theoretical expectations.
Ponce Rodriguez, Raúl A.; Hankla, Charles R.; Martinez-Vazquez, Jorge; and Heridia-Ortiz, Eunice, "Rethinking the Political Economy of Decentralization: How Elections and Parties Shape the Provision of Local Public Goods" (2012). Political Science Faculty Publications. 17.