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Interregional redistribution and budget institutions under asymmetric information

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  • Huber, Bernd
  • Runkel, Marco

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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Bibliographic 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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Citations

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Cited by:
  1. Huber, Bernd & Runkel, Marco, 2008. "Interregional redistribution and budget institutions under asymmetric information," Journal of Public Economics, Elsevier, vol. 92(12), pages 2350-2361, December.
  2. Herold, Katharina, 2009. "Intergovernmental grants and financial autonomy under asymmetric information," FiFo Discussion Papers - Finanzwissenschaftliche Diskussionsbeiträge 09-2, University of Cologne, FiFo Institute for Public Economics.
  3. Martin Gonzalez Eiras & Dirk Niepelt, 2004. "Sustaining Social Security," Working Papers 72, Universidad de San Andres, Departamento de Economia, revised Jun 2004.
  4. Plachta, Robert C., 2008. "Fiscal Equalisation and the Soft Budget Constraint," FiFo Discussion Papers - Finanzwissenschaftliche Diskussionsbeiträge 08-8, University of Cologne, FiFo Institute for Public Economics.

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