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Income Redistribution in an Economic Union: The Trade Off Between Inter- and Intra-National Redistribution

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  • Helmuth Cremer

    ()

  • Pierre Pestieau

    ()

Abstract

This paper studies the design of redistributive policiesbetween and within the member countries of an economic union.There are two types of countries, which differ in their proportionof high income individuals. Both the supra-national and the nationalgovernments attempt to redistribute income within their respectiveboundaries. However, the central government cannot observe anindividual country‘s ability to pay; it only observes the aggregate(internal) redistributive effort of each country. We derive theoptimal incentive compatible tax-transfer policy of the centralgovernment and show that there is a tradeoff between inter- andintra-national redistribution. Specifically, to reduce informationalrents of the rich countries, the optimal policy induces a distortionin the poor countries‘ (internal) redistributive policies. Interestingly,both insufficient as well as excessive redistribution can arise. Copyright Kluwer Academic Publishers 1997

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Bibliographic Info

Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 4 (1997)
Issue (Month): 3 (July)
Pages: 325-335

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Handle: RePEc:kap:itaxpf:v:4:y:1997:i:3:p:325-335

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Web page: http://www.springerlink.com/link.asp?id=102915

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  1. Cremer, Helmuth & Pestieau, Pierre, 1996. "Distributive implications of European integration," European Economic Review, Elsevier, vol. 40(3-5), pages 747-757, April.
  2. Stiglitz, Joseph E., 1982. "Self-selection and Pareto efficient taxation," Journal of Public Economics, Elsevier, vol. 17(2), pages 213-240, March.
  3. Massimo Bordignon & Paolo Manasse & Guido Tabellini, . "Optimal Regional Redistribution Under Asymmetric Information," Working Papers 93, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  4. Horst Raff & John Wilson, 1997. "Income Redistribution with Well-Informed Local Governments," International Tax and Public Finance, Springer, vol. 4(4), pages 407-427, November.
  5. Bucovetsky, S. & Marchand, M. & Pestieau, P., 1998. "Tax Competition and Revelation of Preferences for Public Expenditure," Journal of Urban Economics, Elsevier, vol. 44(3), pages 367-390, November.
  6. Helmuth Cremer & Maurice Marchand & Pierre Pestieau, 1996. "Interregional redistribution through tax surcharge," International Tax and Public Finance, Springer, vol. 3(2), pages 157-173, May.
  7. Picard, P. & Gilbert, G., 1992. "Incentives and the Optimal Size of Local Territories," Research Papers by the Institute of Economics and Econometrics, Geneva School of Economics and Management, University of Geneva 92.12, Institut d'Economie et Econométrie, Université de Genève.
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Cited by:
  1. Kolmar, Martin, 2002. "Income redistribution in an economic union: Does asymmetric information legitimize centralization?," Discussion Papers, Series 1 317, University of Konstanz, Department of Economics.
  2. Pestieau, Pierre, 1996. "Politique sociale, redistribution et intégration économique," L'Actualité Economique, Société Canadienne de Science Economique, vol. 72(3), pages 275-289, septembre.
  3. Martin Kolmar, 2003. "An Analysis of Institutional Change in the European Union," European Journal of Law and Economics, Springer, vol. 16(3), pages 303-326, November.
  4. Horst Raff & John Wilson, 1997. "Income Redistribution with Well-Informed Local Governments," International Tax and Public Finance, Springer, vol. 4(4), pages 407-427, November.
  5. Feld, Lars P, 2000. " Tax Competition and Income Redistribution: An Empirical Analysis for Switzerland," Public Choice, Springer, vol. 105(1-2), pages 125-64, October.
  6. Martin Besfamille & Jean-Marie Lozachmeur, 2010. "NIMBY and mechanism design under different constitutional constraints," International Tax and Public Finance, Springer, vol. 17(2), pages 114-132, April.
  7. Martin Kolmar, 2002. "An Analysis of Institutional Change in the European Union with an Application to Social Policy," Discussion Papers of DIW Berlin 282, DIW Berlin, German Institute for Economic Research.
  8. GRECO, Luciano, 2003. "Optimal grants under asymmetric information: federalism versus devolution," CORE Discussion Papers 2003024, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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