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Is a Uniform Social Policy Better? Fiscal Federalism and Factor Mobility

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  • Roberto Perotti

Abstract

This paper develops a two-country model to study two questions. How do the degrees of centralization of redistribution and of factor mobility affect the productive efficiency of the economies? What degrees of centralization of redistribution and of factor mobility are likely to be chosen by majority rule? The model shows that a system of centralized redistribution can lead to less efficient outcomes if labor or capital are not mobile; and an inefficient outcome, with incomplete or no factor mobility, receives a majority of votes in both countries, whenever the structure of labor markets is very different in the two countries.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.91.3.596
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 91 (2001)
Issue (Month): 3 (June)
Pages: 596-610

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Handle: RePEc:aea:aecrev:v:91:y:2001:i:3:p:596-610

Note: DOI: 10.1257/aer.91.3.596
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References

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  1. Wildasin, David E, 1991. "Income Redistribution in a Common Labor Market," American Economic Review, American Economic Association, vol. 81(4), pages 757-74, September.
  2. Orr, Larry L, 1976. "Income Transfers as a Public Good: An Application to AFDC," American Economic Review, American Economic Association, vol. 66(3), pages 359-71, June.
  3. Alessandra Casella & Jonathan S. Feinstein, 1990. "Public Goods in Trade: On the Formation of Markets and Political Jurisdictions," NBER Working Papers 3554, National Bureau of Economic Research, Inc.
  4. Persson, Torsten & Tabellini, Guido, 1996. "Federal Fiscal Constitutions: Risk Sharing and Redistribution," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 979-1009, October.
  5. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
  6. Bolton, Patrick & Roland, Gerard, 1996. "Distributional Conflicts, Factor Mobility, and Political Integration," American Economic Review, American Economic Association, vol. 86(2), pages 99-104, May.
  7. Brown, Charles C. & Oates, Wallace E., 1987. "Assistance to the poor in a federal system," Journal of Public Economics, Elsevier, vol. 32(3), pages 307-330, April.
  8. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages C1-33, March.
  9. Alberto Alesina & Enrico Spolaore, 1995. "On the Number and Size of Nations," NBER Working Papers 5050, National Bureau of Economic Research, Inc.
  10. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
  11. Summers, Lawrence H & Gruber, Jonathan & Vergara, Rodrigo, 1993. "Taxation and the Structure of Labor Markets: The Case of Corporatism," The Quarterly Journal of Economics, MIT Press, vol. 108(2), pages 385-411, May.
  12. Perotti, Roberto & Alesina, Alberto, 1997. "The Welfare State and Competitiveness," Scholarly Articles 4553027, Harvard University Department of Economics.
  13. Alesina, Alberto & Perotti, Roberto, 1997. "The Welfare State and Competitiveness," American Economic Review, American Economic Association, vol. 87(5), pages 921-39, December.
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Cited by:
  1. Bordignon, Massimo & Brusco, Sandro, 2006. "On enhanced cooperation," Journal of Public Economics, Elsevier, vol. 90(10-11), pages 2063-2090, November.
  2. Spiros Bougheas & Doug Nelson, . "On the Political Economy of High Skilled Migration and International Trade," Discussion Papers 12/06, University of Nottingham, GEP.
  3. Padovano, Fabio, 2012. "The drivers of interregional policy choices: Evidence from Italy," European Journal of Political Economy, Elsevier, vol. 28(3), pages 324-340.

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