Centralization, Elite Capture, and Service Provision: Evidence From Taiwan

Abstract

Much recent work has debated the effect of decentralization on service provision, its underlying mechanisms, and the tradeoff between responsiveness and elite capture. This study contributes to that debate by investigating a rare partial rollout of institutional change that reversed administrative, fiscal, and political decentralization in Taiwan. Utilizing a difference-in-differences design, I find that centralization decreases public goods provision and that such a negative effect is stronger and more robust on those public goods that involve greater local government activity. Additional evidence related to mechanisms suggests that the loss of proximity and accountability in service delivery after centralization can be critical. The effect heterogeneity results do not constitute strong evidence that centralization significantly improves service provision in areas with higher levels of local elite capture. These findings highlight the importance of decentralization’s responsiveness advantages in improving local service provision and advance the policy debate on local institutional choice.