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1 Professor of Economics, University of Maryland, and University Fellow, Resources for the Future. I am most grateful for a host of helpful comments on an earlier draft from Robert Inman, Ronald McKinnon, Daniel Rubinfeld, Robert Schwab, John Wallis, Barry Weingast, and three anonymous referees; for research assistance from Tugrul Gurgur; and for the s lendid editorial guidance of John Pencavel and Jogn McMillan.
planning that, in the view of many, has failed to bring these nations onto a path of self-sustaining growth. But the proper goal of restructuring the public sector cannot simply be decentralization. The public sector in nearly all countries consists of several different levels. The basic issue is one of aligning responsibilities and fiscal instruments with the proper levels of government. As Alexis de Toqueville observed more than a centupy ago, "The federal system was created with the intention of combining the different advantages which result from the magnitude and the littleness