Handbook of Multilevel Finance
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Handbook of Multilevel Finance

Edited by Ehtisham Ahmad and Giorgio Brosio

This Handbook explores and explains new developments in the “second generation” theory of public finance, in which benevolent rulers and governments have been replaced by personally motivated politicians and the associated institutions. Following a comprehensive introduction by the editors, the renowned contributors present fresh and original perspectives on the key multi-level issues, along with recent developments in theory and practice, as they relate to taxes, budget systems, the management of liabilities and macroeconomic stability. The book also explores special issues concerning the poor and marginalized, structural change and the environment, natural disasters, and the task of overcoming conflicts whilst keeping countries together.
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Chapter 4: Horizontal competition in multilevel governmental settings

Pierre Salmon


Governmental systems, whether federations, unitary states, or a sui generis entity such as the European Union, always include many governments (national, regional and local), which always compete with each other (Breton 1996). Thus competition among governments is first of all a fact – a feature of existing arrangements whose importance varies in time and space but is never completely absent and is seldom negligible. But it is also a perspective. As such its adoption could easily lead to addressing under a different angle all the topics discussed in the vast literature devoted to federalism and decentralization. I will not discuss vertical competition (Breton 2006 and this volume), only competition among governments situated on the same tier of a governmental system: horizontal competition. This makes the task less overwhelming. Still, if only to avoid duplication with the others, this chapter glosses almost completely over aspects of the subject that are often considered essential, in particular normative implications. Conversely, special attention – with the objective of convincing readers that they deserve more attention – is devoted to relatively unheeded aspects of intergovernmental competition. Two main forms of horizontal competition among governments are considered in the literature. The best known – hereafter mobility-based competition – starts from the possibility that some individuals, goods, factors or firms move across jurisdictions as a response to the policies these jurisdictions implement. The second – horizontal yardstick competition – is based instead on the possibility that office-holders are rewarded or sanctioned on the basis of comparative assessments of performance across jurisdictions.

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