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Interregional Redistribution and Budget Institutions under Asymmetric Information

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  • Bernd Huber
  • Marco Runkel

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 budgetary 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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  • Bernd Huber & Marco Runkel, 2005. "Interregional Redistribution and Budget Institutions under Asymmetric Information," CESifo Working Paper Series 1491, CESifo.
    • Handle: RePEc:ces:ceswps:_1491
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    Cited by:

    1. 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.
    2. Bernd Huber & Marco Runkel, 2008. "Hyperbolic Discounting, Public Debt And Balanced Budget Rules," Scottish Journal of Political Economy, Scottish Economic Society, vol. 55(5), pages 543-560, November.
    3. Darong Dai & Weige Huang & Liqun Liu & Guoqiang Tian, 2022. "Optimal Regional Insurance Provision: Do Federal Transfers Complement Local Debt?," Journal of Economics, Springer, vol. 137(1), pages 35-80, September.
    4. 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.
    5. Gonzales-Eiras, Martín & Niepelt, Dirk, 2004. "Sustaining Social Security," Seminar Papers 731, Stockholm University, Institute for International Economic Studies.
    6. Darong Dai & Liqun Liu & Guoqiang Tian, 2019. "Interregional redistribution and budget institutions with private information on intergenerational externality," Review of Economic Design, Springer;Society for Economic Design, vol. 23(3), pages 127-154, December.
    7. Darong Dai & Guoqiang Tian & Liqun Liu, 2019. "Optimal Regional Insurance Provision under Privately Observable Shocks," 2019 Meeting Papers 448, Society for Economic Dynamics.
    8. Vladimir V. Dashkeev & Stephen J. Turnovsky, 2023. "Tax systems and public borrowing limits in a fiscal union," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(2), pages 351-395, April.
    9. Darong Dai & Guoqiang Tian, 2023. "Optimal interregional redistribution and local budget rules with multidimensional heterogeneity," Review of Economic Design, Springer;Society for Economic Design, vol. 27(1), pages 79-124, February.
    10. Malkina, M. Yu., 2018. "The determinants of budget revenues of Russian regions," R-Economy, Ural Federal University, Graduate School of Economics and Management, vol. 4(3), pages 95-104.
    11. 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.
    12. Darong Dai & Dennis W. Jansen & Liqun Liu, 2021. "Inter-jurisdiction migration and the fiscal policies of local governments," Journal of Economics, Springer, vol. 132(2), pages 133-164, March.
    13. Josef Schroth, 2015. "Risk Sharing in the Presence of a Public Good," Staff Working Papers 15-27, Bank of Canada.

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    Keywords

    asymmetric information; interregional redistribution; borrowing rules;
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