This paper presents a theoretical model exploring the role of institutional distance between voters and politicians in the provision of public goods and citizens’ welfare. Proximity eases access to information about public policies, increasing political accountability. However, rent-seeking politicians can bias information reducing citizens’ welfare. We show that the optimal distance depends on the pool of politicians, voters’ political awareness and the cost of distorting information. As these elements differ across regions, a one-size-fits-all institutional reform may be beneficial for some jurisdictions and detrimental for others. A mechanism based on politicians’ remuneration can mitigate possible welfare-decreasing effects of voter-politician proximity.

Poverty in Mexico was high before the COVID-19 pandemic and has been exacerbated by the pandemic, with significant variation across states. Education losses from the pandemic are likely to be large and worsen pre-existing disparities; unless mitigated soon, they could contribute to heightened scarring over the medium term. Using state-level and cross-country comparisons, this paper reviews key social programs as well as priorities in education and health. It finds that higher spending and improved design of social programs (e.g., better targeting) would reduce socioeconomic gaps, mitigate scarring risks, and foster inclusive growth.

Tax decentralisation should improve the efficiency of local governments and ultimately boost output growth. The empirical evidence is however mixed. The current work looks at two channels through which tax decentralisation may affect economic growth: labour productivity and employment rate. The empirical analysis conducted on 20 OECD countries over the period 1980-2010 shows that the ultimate effect of fiscal decentralisation on growth depends on which channel prevails, thus rendering the direct estimation of tax decentralisation on growth ambiguous. Tax decentralisation make the employment rate grow faster, while it has either no effect of reduces labour productivity growth. When the analysis is conducted using an IV approach with instruments based on institutional similarities and geographic distance, the positive and significant effect on employment rate growth is offset by the reduction of labour productivity growth, resulting in the absence of any statistically significant effect on output growth.

The virtues of fiscal decentralisation are usually assessed against the provision of local public goods, little is said about its impact on public finances. There is, however, a growing concern that central governments losing control over part of the budget could negatively affect public finances, especially in times of adverse financial conditions. The present work shows that these concerns are misplaced. The empirical investigation on 19 OECD countries, over the period 1980-2010, shows that expenditure decentralisation improves the central budget balance without prejudice for local budgets, thus improving the overall country’s fiscal position. This effect is reinforced when combined with tax autonomy. During periods of financial crises, the disciplinary role of fiscal decentralisation appears to be even stronger, raising concerns about the recentralisation trend recently pursued by some advanced economies precisely to face fiscal distress and economic stagnation.

The present work investigates the relationship between municipal fragmentation and regional per capita GDP growth rate, using a panel of OECD TL2 regions in the period 1996-2011. According to the fiscal decentralisation literature, fragmentation should enhance growth as local government closer to citizens can implement policies that better match their needs, thus providing services and public goods in a more efficient way. The presence of many local governments, however, may create problems in terms of overlapping functions, (dis)economies of scale, and policy fragmentation. The results of the empirical analysis show that municipal fragmentation has a negative impact on per capita GDP growth, thus supporting the view that costs prevail on benefits. The introduction of regional territorial characteristic – namely, the share of population living in rural areas – provides a different picture, however. The negative impact of fragmentation decreases with the share of population living in rural areas. Indeed, in extremely “rural” regions the effect turns mildly positive. This is because the costs and benefits of fragmentation have a different weight in urban and rural regions. The key insight is the different distribution of the population over the territory: more concentrated in urban than in rural regions. This implies that, for a given level of municipal fragmentation overlapping of function is more severe in urban regions (where people are likely to commute over municipal boundaries) than in rural area. In the same vein, for the same level of municipal fragmentation access to the local government is more difficult in rural areas (where people is sparsely located within municipal boundaries) than in urban areas. The policy implications of the analysis are twofold. Firstly, reducing municipal fragmentation may have a heterogeneous impact within the country, thus raising concern for one-size-fits-all policies of municipal agglomeration in favour of a place-based approach to institutional reform. For instance, the principle guiding municipal amalgamation should not be the average municipal size at the country level, but it should be weighted for the rural/urban characteristics of each region. Secondly, the analysis suggests that processes of agglomeration of people should be accompanied by a consistent amalgamation of the local administration, otherwise representing an obstacle to the full realisation of agglomeration economies.

The present work investigates the relationship between administrative fragmentation and regional per capita GDP growth rate, using a panel of OECD TL2 regions in the period 1996-2011. According to the fiscal decentralisation literature, fragmentation should enhance growth as local governments can implement policies that better match citizens’ needs, thus providing services and public goods in a more efficient way. The presence of many local governments, however, may result in overlapping functions, (dis)economies of scale, and uncoordinated policies.

The present paper investigates the role of political institutions namely, political regimes and electoral rules in shaping the capacity of the government to implement policies that address citizens' preferences, i.e., "good governance". The empirical analysis, conducted on a panel of 80 democratic countries over the period 1996-2011, shows that the performance of the government depends on the interaction between electoral rules and political regimes. In particular, the performance of a government under a presidential regime improves when associated with a majoritarian electoral rule, while it worsens with a proportional electoral rule. (C) 2016 Elsevier B.V. All rights reserved.

Across the OECD, GDP per capita is converging. In contrast, regional disparities – or differences in GDP per capita across jurisdictions – are rising, mainly as a result of widening productivity differences. Fiscal decentralisation could help reduce them again. According to new OECD research, assigning more ownsource revenue to sub-national governments dampens regional GDP disparities and underpins regional convergence. In more decentralised settings, catching-up regions appear to adopt policy innovations more rapidly and their policy innovations have a stronger impact. Conversely, intergovernmental grants tend to fuel disparities, probably because they discourage lagging regions to develop their economic and fiscal base. However, when replacing intergovernmental transfers by own-source revenue, lower disparities in regional output may come at the cost of larger disparities in regional income and more unequal public service standards. Reforms to intergovernmental fiscal frameworks should therefore be two-pronged: a rise in sub-national own-source revenue should be paired with a re-design of intergovernmental transfers and fiscal equalisation, in order to make all jurisdictions enjoy the benefits of more sub-central fiscal power. La decentralisation budgetaire encourage-t-elle la convergence regionale du PIB ? Si l’on observe une convergence des PIB par habitant au sein de la zone OCDE, en revanche, les disparites regionales, c’est-a-dire, les ecarts de PIB par habitant entre regions d’un meme pays, se creusent, essentiellement du fait de l’augmentation des ecarts de productivite. La decentralisation budgetaire pourrait contribuer a ce que ces disparites se reduisent de nouveau. Une nouvelle etude de l’OCDE montre que les disparites regionales de PIB sont attenuees et la convergence entre les regions stimulee lorsque les administrations infranationales disposent de recettes propres plus importantes. Il semble que, dans un environnement plus decentralise, les regions en phase de rattrapage adoptent plus rapidement les innovations de politique publique et que celles-ci aient un impact plus fort. A l’inverse, les transferts interadministrations tendent a alimenter les disparites, probablement parce qu’ils n’incitent pas les regions en retard a elargir leur assise economique et budgetaire. Toutefois, en remplacant les transferts interadministrations par des recettes propres, on risque de voir la reduction des differences regionales au niveau de la production s’operer au prix d’un creusement des disparites au niveau des revenus et d’un accroissement des inegalites en matiere de normes de service public. Les reformes des cadres budgetaires interadministrations devraient donc etre deployees en deux volets : l’augmentation des recettes infranationales propres devrait etre couplee a une redefinition des transferts interadministrations et de la perequation budgetaire, de facon que toutes les juridictions profitent des avantages du renforcement du pouvoir budgetaire des administrations infranationales.

The present work looks at the relationship between institutional structure and economic performance at the regional level. The work focuses on one particular aspect, the number of municipalities in a given region (municipal fragmentation) and the impact on regional development measured as GDP per capita growth. The impact of municipal fragmentation on regional development is not clear a priori. The theory of fiscal decentralisation maintains that institutions closer to citizens can better deal with their needs, thus providing services and public goods in a more efficient way. This closeness, however, implies the presence of many local governments (e.g., municipalities), which may create problems in terms of policy spillovers and (dis)economies of scale. The present work tests the impact of municipal fragmentation on a sample of OECD TL2 regions, in the period 1996-2011. The analysis shows that the impact of fragmentation on regional performance depends on regional territorial characteristics. In particular, the negative impact of fragmentation increases with the share of regional population living in urban areas. In fact, for ?rural? regions the effect is small or even positive where a high share of the population lives in rural areas. This is because the costs and benefits of decentralisation have a different impact in urban and rural regions. In urban regions, the benefit of internalising policy spillovers (and reducing transaction costs) is higher than the loss of proximity, because population is geographically concentrated and commutes more than population in rural areas, where policy spillovers are smaller and the costs associated with the loss of proximity higher. The implications for countries? economic policies are threefold. Firstly, countries should not consider the degree of administrative fragmentation per se, it is important to weight it for the rural index at the regional level. For instance, when considering France as a whole the level of municipal fragmentation is the second highest among OECD countries, but most of this fragmentation stems from rural regions. Secondly, the analysis implicitly recognises the importance of dealing with governance gaps in urban regions; for instance, the lack of co-operation in transport policies is especially detrimental for the performance of metropolitan areas. Thirdly, the overall effect of a reduction of municipal fragmentation would depend on the types of regions within each country. To sum-up, the present work shows the importance of territorial characteristics for administrative performance, thus advocating for a place-based approach to institutional reforms.

Using a panel of 24 OECD countries, we study the link between the autonomy of sub-national governments and the quality of governance of a country. The results show that fiscal autonomy worsens citizens' perceptions of governance quality. In particular. the delegation of policy responsibilities to the regional level produces a robust negative effect on quality.

This paper conducts an empirical analysis of the determinants of airline alliances. Well established airlines with large passengers' volumes are more likely to participate in an alliance and are also essential for alliance survivability. In line with this finding, older air-lines have a higher probability of being part of an alliance. Airlines operating with high load factors consider alliance participation as a significant alternative to fleet capacity expansion. As their market share grows, alliances become more appealing to airlines. Competitors' decision to enter an alliance tends to have a positive impact on alliance participation. The relatively similar magnitude and effect of the regressors' coefficients across different alliance choices, suggests that the airline's major decision is not to choose a specific alliance, but rather considering whether to enter into an alliance, as a possible strategy within its business model.

We investigate the presence of political yardstick competition on current spending decisions in a sample of Italian municipalities. We find significant evidence of yardstick competition when we explicitly account for the domestic stability pact (DSP), a fiscal rule introduced to limit the budget deficit of local administrations. First, we estimate a static specification of a spatial panel model, and then we check for the robustness of our results with a dynamic specification. The static analysis shows that municipalities engage in yardstick competition during pre-election years, regardless of whether they are subject to the DSP or not. The dynamic analysis shows that the yardstick hypothesis remains robust only for municipalities not constrained by the DSP.

In the literature on price regulation, the price-cap mechanism is seen as a very powerful incentive mechanism towards efficiency improvements. What about quality investments? The empirical literature is not univocal: Some studies suggest a deterioration of quality, while others do not find any statistically significant impact. We analyze the incentive provided by price-cap regulation in a setting in which the investment decisions of the regulated firm suffer from hold-up, and contacts are incomplete. We show that the incentives to invest in cost-saving innovations can be fostered by a price-cap contract with a “sufficient” regulatory lag, while for other types of investments, such as quality enhancement, the same contract does not help. Furthermore, we show that if the firm faces a binding resource constraint the price-cap contract generates a crowding-out effect between the two types of investment. This might explain the non univocal empirical evidence.

In this paper we conduct an empirical investigation of the determinants of airline alliances. The results of the analysis show that well-established airlines with large passenger volume are more likely to participate in an alliance, and are essential for its sustainability. In line with these findings, older airlines have a higher probability of being part of an alliance. Moreover, the decision to join or form an alliance is fostered by the aggregate market share of the alliances. Interestingly, our analysis suggests that the airline's main decision is not to choose a specific alliance, but whether to join or form an alliance at all.