Taxation and social protection under governance decentralisation

Governments do not have perfect information regarding constituent priorities and needs. This lack of knowledge opens the door for groups to lobby in order to affect the taxes they pay the government. We examine the political economy of a decentralised revenue-raising authority in light of social protection expenditures by constructing a theoretical model of hierarchical contests and comparing the implications of centralised with decentralised governance. Increasing information available to the government may generate additional expenditures by constituencies trying to affect government taxation decisions. •Study political economy of revenue-raising in light of social protection expenditures.•Analyse decision-making decentralisation over taxes in a rent-seeking framework.•Characterize how decentralisation and information changes rent-seeking and tax burden.•Information may generate expenditures by those trying to affect government decisions.•Federalism's neglected cost – intergovernmental lobbying via sub-national constituencies.