H7 - State and Local Government; Intergovernmental RelationsReturn

This article analyses a model in which the national border is determined non-dictatorially by being based on citizens' preferences. Each country faces a trade-off in terms of social welfare when considering whether to increase its size. As a country's size increases, the government can collect more taxes and provide more public goods, which, all else equal, makes its citizens better off. On the other hand, a country that increases its size is assumed to also increase the heterogeneity of its citizens' preferences leading to increased mismatch between preferences and the public goods provided by government. Notwithstanding the benefit of greater quantities of public goods afforded by living in a larger country, greater dissatisfaction with the public goods provided by government (i.e. preference mismatch) makes some segments of the citizenry worse off. Contrary to Alesina and Spolaore (1997), we show that a symmetric national border may be unstable. We also examine whether voluntary declaration of nationality guarantees the social optimum. Despite economies of scale from unification, the model implies that, from a social welfare perspective, there may be either too few, or too many, countries. Unification leading to fewer countries can be social welfare enhancing if people's preferences in those states are quite similar; secessions leading to a greater number of smaller states can be social welfare enhancing if preferences are sufficiently heterogenous.

The aim of this paper is to examine and provide new evidence on changes in the costs and other determinants of economic rationality of international sharing of armaments projects. Based on current transaction costs theory, it defines individual and collective transaction costs of a weapon systems club. Using results of questionnaire survey, gathering expectations of international expert armaments community, there are analysed relations anticipated among those determinants, which are decisive for the amount of project costs. Results of these analyses indicate general anticipation of decreased total project costs in case of international sharing of armaments projects, along with increased project transparency, which can be viewed as one of the generators of decreased total costs. Transaction costs have indicated an unchanged level or a moderate decrease. Their individual component is to decrease. On the other hand, collective transaction costs are to grow, however, up to the extent of the decrease of individual transaction costs.

The main objective of this paper is to fill a critical gap in the literature by analyzing the effects of decentralization on the macroeconomic stability. A survey of the voluminous literature on decentralization suggests that the question of the links between decentralization and macroeconomic stability has been relatively scantily analyzed. Even though there is still a lot of room for analysis as far as the effects of decentralization on other aspects of the economy are concerned, we believe that it is in this area that a more thorough analyses are mostly called for. Through this paper, we will try to shed more light on the issue notably by looking at other dimension of macroeconomic stability than the ones usually employed in previous studies as well as by examining other factors that might accentuate or diminish the effects of decentralization on macroeconomic stability. Our results found that decentralization appears to lead to a decrease in inflation rate. However, we do not find any correlation between decentralization with the level of fiscal deficit. Our results also show that the impact of decentralization on inflation is conditional on the level of perceived corruption and political institutions.