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The Political Economy of Sustainable Federations

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  • Mark Gradstein
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    Abstract

    This paper studies a constitutional framework that enables sustainable federative agreements. In the model, districts decide on local policies and envision the possibility of entering a federation. Focusing on rules for legislative bargaining in the federation, I find that a non-egalitarian bargaining rule, which assigns policy making power to one of the district's representatives is welfare inferior to the decentralized status quo. In contrast, under an egalitarian bargaining procedure, federation yields a welfare superior outcome. The analysis indicates the desirability of making such egalitarian bargaining rules credible.

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    File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2000/wp-cesifo-2000-07/cesifo_wp315.pdf
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    Bibliographic Info

    Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 315.

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    Date of creation: 2000
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    Handle: RePEc:ces:ceswps:_315

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    1. Gradstein, Mark & Justman, Moshe, 2001. "Education, Social Cohesion and Economic Growth," CEPR Discussion Papers 2773, C.E.P.R. Discussion Papers.
    2. Crémer, Jacques & Palfrey, Thomas, 1997. "Political Confederation," IDEI Working Papers 72, Institut d'Économie Industrielle (IDEI), Toulouse.
    3. Persson, Torsten & Tabellini, Guido, 1996. "Federal Fiscal Constitutions: Risk Sharing and Redistribution," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 979-1009, October.
    4. Besley, Timothy & Coate, Stephen, 2003. "Centralized versus decentralized provision of local public goods: a political economy approach," Journal of Public Economics, Elsevier, vol. 87(12), pages 2611-2637, December.
    5. Ellingsen, Tore, 1998. "Externalities vs internalities: a model of political integration," Journal of Public Economics, Elsevier, vol. 68(2), pages 251-268, May.
    6. Wärneryd, Karl, 1997. "Distributional Conflict and Jurisdictional Organization," Working Paper Series in Economics and Finance 173, Stockholm School of Economics.
    7. Robert H. Bates & Avner Greif & Margaret Levi & Jean-Laurent Rosenthal, 1998. "Analytic Narratives," Economics Books, Princeton University Press, edition 1, volume 1, number 6355.
    8. Persson, Torsten & Tabellini, Guido, 1994. "Does centralization increase the size of government?," European Economic Review, Elsevier, vol. 38(3-4), pages 765-773, April.
    9. Bolton, Patrick & Roland, Gérard, 1995. "The Break up of Nations: A Political Economy Analysis," CEPR Discussion Papers 1225, C.E.P.R. Discussion Papers.
    10. Easterly, William & Levine, Ross, 1997. "Africa's Growth Tragedy: Policies and Ethnic Divisions," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1203-50, November.
    11. Cremer, J. & Palfrey, T.R., 1994. "In or Out?: Centralization by Majority Vote," Papers 94.335, Toulouse - GREMAQ.
    12. Lockwood, B., 1998. "Distributive Politics and the Benefits of Decentralization," The Warwick Economics Research Paper Series (TWERPS) 513, University of Warwick, Department of Economics.
    13. Robert P. Inman & Daniel L. Rubinfeld, 1997. "Rethinking Federalism," Journal of Economic Perspectives, American Economic Association, vol. 11(4), pages 43-64, Fall.
    14. Knack, Stephen & Keefer, Philip, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1251-88, November.
    15. Buchanan, James M & Faith, Roger L, 1987. "Secession and the Limits of Taxation: Toward a Theory of Internal Exit," American Economic Review, American Economic Association, vol. 77(5), pages 1023-31, December.
    16. Alesina, Alberto & Spolaore, Enrico, 1997. "On the Number and Size of Nations," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1027-56, November.
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    Cited by:
    1. R Dur & H.J. Roelfsema, 2004. "Why does centralisation fail to internalise policy externalities?," Working Papers 04-09, Utrecht School of Economics.
    2. repec:dgr:uvatin:2002056 is not listed on IDEAS
    3. Libman, Alexander Mikhailovich, 2009. "Эндогенные Границы И Распределение Власти В Федерациях И Международных Сообществах
      [ENDOGENOUS BOUNDARIES AND DISTRIBUTION O
      ," MPRA Paper 16473, University Library of Munich, Germany.

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