Decentralization in command economies that lack mechanisms for horizontal exchange often proves disastrous (Kornai, 1992: 406). Regional governments devolve into autarkies, capital and labor are not mobile, and the decentralized response to central targets requires destabilizing fiscal bailouts. Qian and Roland (1996) argue that fiscal decentralization is one of several factors affecting the hardness of local government’s budget constraint. Qian and Roland (1998) model fiscal decentralization as a commitment device for the central government when fiscal competition increases the opportunity costs of bailouts. Comparing Russia and China, Blanchard and Shleifer (2001) argue that political centralization in China.
