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Interregional redistribution and budget institutions under asymmetric information

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Author Info
Huber, Bernd
Runkel, Marco

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Abstract

Empirical evidence from the U.S. and the European Union suggests that regions which contribute to interregional redistribution face weaker borrowing constraints than regions which benefit from interregional redistribution. This paper presents an argument in favor of such differentiated budget institutions. It develops a two period model of a federation consisting of two types of regions. The federal government redistributes from one type of regions (contributors) to the other type (recipients). It is shown that a fiscal constitution with lax budget rules for contributors and strict budget rules for recipients solves the self selection problem the federal government faces in the presence of asymmetric information regarding exogenous characteristics of the regions.

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Publisher Info
Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 92 (2008)
Issue (Month): 12 (December)
Pages: 2350-2361
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Handle: RePEc:eee:pubeco:v:92:y:2008:i:12:p:2350-2361

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Web page: http://www.elsevier.com/locate/inca/505578

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Keywords: Asymmetric information Interregional redistribution Borrowing rules;

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References listed on IDEAS
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  4. Huber, Bernd & Runkel, Marco, 2003. "Optimal Design of Intergovernmental Grants under Asymmetric Information," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  5. Poterba, James M. & Rueben, Kim S., 2001. "Fiscal News, State Budget Rules, and Tax-Exempt Bond Yields," Journal of Urban Economics, Elsevier, vol. 50(3), pages 537-562, November. [Downloadable!] (restricted)
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  14. Schmitt-Grohe, Stephanie & Uribe, Martin, 1997. "Balanced-Budget Rules, Distortionary Taxes, and Aggregate Instability," Journal of Political Economy, University of Chicago Press, vol. 105(5), pages 976-1000, October.
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  15. Poterba, James M, 1994. "State Responses to Fiscal Crises: The Effects of Budgetary Institutions and Politics," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 799-821, August. [Downloadable!] (restricted)
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  16. Alesina, Alberto & Tabellini, Guido, 1990. "A Positive Theory of Fiscal Deficits and Government Debt," Review of Economic Studies, Blackwell Publishing, vol. 57(3), pages 403-14, July. [Downloadable!] (restricted)
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  18. Poterba, James M., 1995. "Capital budgets, borrowing rules, and state capital spending," Journal of Public Economics, Elsevier, vol. 56(2), pages 165-187, February. [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. Plachta, Robert, 2008. "Fiscal Equalisation and the Soft Budget Constraint," FiFo-CPE Discussion Papers - Finanzwissenschaftliche Diskussionsbeiträge 08-8, University of Cologne, CPE - Cologne Center for Public Economics. [Downloadable!]
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