Local government autonomy may be less significant in very small island counties, due to lack of spatial variations in citizen-voters' preferences. A counter factual analysis is performed to test efficiency of local expenditure in a small country environment by incorporating the idea of a new institutional arrangement. Empirical analysis utilising Mauritian data lends support to superiority of local government over central government in providing local services despite very small country size. This result is robust even when the central government is modelled to provide non-uniform local services to recognize spatial variation in preferences. Thus, voter support for local government even in very small countries is rational.
S. H. Y. A. M. NATH and Schroeder, L., “A counterfactual analysis of fiscal decentralization: The case of Mauritius ”, Public Finance & Management, vol. 7, pp. 116-148, 2007.