The Redistributive Effects of Centralization and Decentralization across Subnational Units

Several scholars have argued that decentralization benefits states and municipalities, granting them more autonomy for managing their budgets and more resources to deliver their services. Others have questioned this assertion, claiming that decentralization makes subnational units more fiscally dependent on central governments. This article argues that the fiscal impact of decentralization must be differentiated across states. It theoretically specifies and empirically demonstrates which states benefit during periods of decentralization and centralization. It argues that powerful presidents who centralize resources have imposed greater costs on more developed and fiscally independent districts (which prefer to administer their own resources and can be serious challengers to presidential power), thus relying mainly on support from less developed and more fiscally dependent provinces, which prefer more redistribution. I present empirical evidence for Argentina (1983–2004), a developing federation with strong governors and high cross-regional inequality, and discuss some implications for comparative studies on the topic.