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A Reappraisal of Public Choice Theory of Intergovernmental Relations

In the search for maximum economic efficiency in the allocation of functions of government to different levels, public choice theory implies a number of (mainly) decentralising policy options. In this paper are demonstrated a number of internal confusions and inconsistencies within this theory, and it is concluded that the two main versions of the theory can as easily lead to centralising policies as to decentralist solutions. Empirical applications of public choice analysis are also fraught with problems. In particular, President Reagan's New Federalism with its combination of decentralisation of power to the states together with a sorting out of functions between different levels of government is shown to be incompatible with existing economic theories of intergovernmental relations.