ABSTRACT
The theory of expenditure assignment tells us that, under the right circumstances, certain services, including the infrastructure needed to provide them, can be more efficiently provided by subnational governments. At least in industrial countries, infrastructure investment is decentralized to a significant extent (Estache and Sinha 1995). In OECD countries, even such big projects as ports and airports are often locally managed and funded (Bel and Fageda 2009). In the European Union, for example, the share of subnational investment in economic infrastructure is 60–70 percent in the older member states and 40 percent in the new member states; subnational shares in social investments (e.g., in schools and hospitals) are even higher (Kappeler et al. 2012).
