Decentralization and ideology

Classic arguments about federalist governance emphasize an informational or learning role for decentralizing policy authority, but in practice, ideological outcomes frequently motivate this choice. We examine the role of ideology in the allocation of policy-making power by modeling a two-period interaction between an elected central executive and two local governments. Decentralization reduces the executive's ability to set policy and control externalities but potentially insures against future policy reversals. In this environment, partial decentralization is a common outcome. Complete decentralization arises when executives are unlikely to be re-elected, party polarization is high, and institutional hurdles to policy-making are significant. These results help to clarify existing cross-national empirical findings on the determinants of centralization.