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Why is Argentina’s Fiscal Federalism so Inefficient? Entering the Labyrinth

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Author Info
Sebastian M. Saiegh (Fundación Gobierno & Sociedad, Universidad de San Andrés)
Mariano Tommasi (Universidad de San Andrés)

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Abstract

A long-standing concern in political economy is whether outcomes are efficient in political equilibrium. Recent contributions have examined the efficiency/inefficiency of policy choices from a theoretical point of view. The aim of this paper is to examine such issue empirically. Building on existing "economic" diagnoses that highlight the deficient incentives present in Argentina’s Federal Tax-Sharing Agreement the paper will attempt to understand the politics behind its adoption and persistence. We suggest an explanation based on the transaction costs of Argentina’s political market. Although potentially Pareto-improving policies could have been adopted, they were not introduced because of the uncertainty over the future status of today’s bargains, and given the lack of institutions to enforce bargains among the political actors. The paper concludes offering some preliminary ideas for institutional engineering: what governance structures could help reduce these transaction costs? The purpose is to create an institutional framework in which political actors could negotiate among themselves, ensuring the enforceability of agreements, in order to achieve more efficient outcomes.

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Article provided by Universidad del CEMA in its journal Journal of Applied Economics.

Volume (Year): II (1999)
Issue (Month): (May)
Pages: 169-209
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Handle: RePEc:cem:jaecon:v:2:y:1999:n:1:p:169-209

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Mariano Tommasi, 1992. "Inflation and Relative Prices Evidence from Argentina," UCLA Economics Working Papers 661, UCLA Department of Economics. [Downloadable!]
  2. Joskow, Paul L, 1974. "Inflation and Environmental Concern: Structural Change in the Process of Public Utility Price Regulation," Journal of Law & Economics, University of Chicago Press, vol. 17(2), pages 291-327, October.
    Other versions:
  3. Aizenman, Joshua & Isard, Peter, 1993. "Externalities, incentives, and failure to achieve national objectives in decentralized economies," Journal of Development Economics, Elsevier, vol. 41(1), pages 95-114, June. [Downloadable!] (restricted)
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  4. Mariano Tommasi & Guillermo Mondino & Federico Sturzenegger, 1995. "Recurrent High Inflation and Stabilization: A Dynamic Game," Working Papers 10, Universidad de San Andres, Departamento de Economia, revised Nov 1996.
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  5. Tabellini, Guido, 1986. "Money, debt and deficits in a dynamic game," Journal of Economic Dynamics and Control, Elsevier, vol. 10(4), pages 427-442, December. [Downloadable!] (restricted)
  6. Mariano Tommasi & Andrés Velasco, 1995. "Where Are We in the Political Economy of Reform?," Working Papers 11, Universidad de San Andres, Departamento de Economia, revised Apr 1996.
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  7. Pablo Sanguinetti, 1994. "Intergovernmental transfers and public sector expenditures: a game-theoretic approach," Estudios de Economia, University of Chile, Department of Economics, vol. 21(2 Year 19), pages 179-212, December. [Downloadable!]
  8. Acemoglu, Daron & Robinson, James A, 1999. "Inefficient Redistribution," CEPR Discussion Papers 2122, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  9. North, Douglass C, 1991. "Institutions," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 97-112, Winter. [Downloadable!] (restricted)
  10. Sanguinetti, Pablo & Tommasi, Mariano, 2004. "Intergovernmental transfers and fiscal behavior insurance versus aggregate discipline," Journal of International Economics, Elsevier, vol. 62(1), pages 149-170, January. [Downloadable!] (restricted)
  11. Aizenman, Joshua, 1993. "Soft Budget Constraints, Taxes, and the Incentive to Cooperate," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(4), pages 819-32, November. [Downloadable!] (restricted)
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  12. Jones, Mark P. & Sanguinetti, Pablo & Tommasi, Mariano, 2000. "Politics, institutions, and fiscal performance in a federal system: an analysis of the Argentine provinces," Journal of Development Economics, Elsevier, vol. 61(2), pages 305-333, April. [Downloadable!] (restricted)
  13. Coate, Stephen & Morris, Stephen, 1995. "On the Form of Transfers in Special Interests," Journal of Political Economy, University of Chicago Press, vol. 103(6), pages 1210-35, December. [Downloadable!] (restricted)
  14. Sturzenegger, Federico & Tommasi, Mariano, 1994. "The Distribution of Political Power, the Costs of Rent-Seeking, and Economic Growth," Economic Inquiry, Oxford University Press, vol. 32(2), pages 236-48, April.
  15. Denzau, Arthur T & North, Douglass C, 1994. "Shared Mental Models: Ideologies and Institutions," Kyklos, Blackwell Publishing, vol. 47(1), pages 3-31.
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  16. Cukierman, Alex & Tommasi, Mariano, 1998. "When Does It Take a Nixon to Go to China?," American Economic Review, American Economic Association, vol. 88(1), pages 180-97, March. [Downloadable!] (restricted)
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  17. Weingast, Barry R & Marshall, William J, 1988. "The Industrial Organization of Congress; or, Why Legislatures, Like Firms, Are Not Organized as Markets," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 132-63, February. [Downloadable!] (restricted)
  18. Wittman, Donald, 1989. "Why Democracies Produce Efficient Results," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1395-1424, December. [Downloadable!] (restricted)
  19. Tommasi, Mariano, 1999. "On high inflation and the allocation of resources," Journal of Monetary Economics, Elsevier, vol. 44(3), pages 401-421, December. [Downloadable!] (restricted)
  20. Joseph E. Stiglitz, 1996. "Whither Socialism?," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262691825.
  21. Besley, Timothy & Coate, Stephen, 1998. "Sources of Inefficiency in a Representative Democracy: A Dynamic Analysis," American Economic Review, American Economic Association, vol. 88(1), pages 139-56, March. [Downloadable!] (restricted)
  22. Dixit, Avinash K & Londregan, John, 1994. "Redistributive Politics and Economic Efficiency," CEPR Discussion Papers 1056, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  23. Juliana Bambaci & Tamara Saront & Mariano Tommasi, 2002. "The Political Economy of Economic Reforms in Argentina," Journal of Policy Reform, Taylor and Francis Journals, vol. 5(2), pages 75-88, January. [Downloadable!] (restricted)
  24. Becker, Gary S, 1983. "A Theory of Competition among Pressure Groups for Political Influence," The Quarterly Journal of Economics, MIT Press, vol. 98(3), pages 371-400, August. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Russell W. Cooper & Hubert Kempf., 2001. "Dollarization and the conquest of hyperinflation in divided societies," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 3-12. [Downloadable!]
  2. Emmanuel Abuelafia & Sergio Berensztein & Miguel Braun & Luciano di Gresia, 2005. "Who Decides on Public Expenditures? A Political Economy Analysis of the Budget Process: The Case of Argentina," Public Economics 0511004, EconWPA. [Downloadable!]
  3. Shah, Anwar, 2005. "Fiscal decentralization and fiscal performance," Policy Research Working Paper Series 3786, The World Bank. [Downloadable!]
  4. Russell Cooper & Hubert Kempf, 2000. "Designing Stabilization Policy in a Monetary Union," Econometric Society World Congress 2000 Contributed Papers 0529, Econometric Society. [Downloadable!]
    Other versions:
  5. Russell Cooper & Hubert Kempf & Dan Peled, 2005. "Is it is or is it ain't my obligation? Regional debt in a fiscal federation," Working Papers 05-07, Federal Reserve Bank of Dallas. [Downloadable!]
    Other versions:
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