Author

Spahn, Paul Bernd

1997

Number of Pages:

5

Full Text

Decentralized Government and Macroeconomic Control

Abstract

There is a wide agreement that decentralized government can improve the allocation of public resources by

bringing decision making closer to consumers and by enhancing he accountability of public officials and

bureaucrats. However, multiple layers of government can cause problems for national macroeconomic

control. This is because local accountability does not only imply decentralized decision-making; it typically

entails financial competencies as well—together with the right to borrow for lower-level authorities.

Uncontrolled access to capital markets and mismanagement of budgets by local government could thus

jeopardize macroeconomic stability and a case can be made for centralizing the stabilization factors. This note

discusses problems of macroeconomic control under decentralized government from a theoretical point of

view. It concludes that the decentralization of public functions is not necessarily at variance with stabilization

objectives.