State Capture from Below? The Contradictory Effects of Decentralisation on Public Spending

This study analyses the contradictory effects of decentralisation on public spending. We distinguish three dimensions of decentralisation and analyse their joint and separate effects on public spending in the Swiss cantons over 20 years. We find that overall decentralisation has a strong, significant and negative effect on the size of the public sector, thus confirming the Leviathan hypothesis. The same holds for fiscal and institutional decentralisation. However, the extent to which political processes and actors are organised locally rather than centrally actually increases central and decreases local spending. This suggests that actors behave strategically when dealing with the centre by offloading the more costly policies. The wider implication of our study is that the balance between self-rule and shared rule has implications also for the size of the overall political system.