Small States, Large Unitary States and Federations
AbstractEmploying a political-economics approach, this paper compares small states and unions when the former fail to internalize cross-border externalities of publicly provided goods. It discusses two types of unions: federations with more than one level of government and unitary states. While unitary states are unable to differentiate public spending ac-cording to differing preferences, rents of governments in a federation are higher due to a common-pool problem. The comparison leads to the following results. (1) Citizens prefer small states to large states if spillover effects are weak. (2) They benefit from a multi-level government only if their preferences heavily differ from the median-voter’s preferences and if spillovers are strong. Based on this comparison the paper also dis-cusses the creation of unions. Making specific assumption on the distribution of prefer-ences, it analyzes strong Nash equilibria and coalition-proof equilibria at the union formation stage.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 729.
Date of creation: 2002
Date of revision:
voting theory; electoral accountability; federations; strong Nash equilibria; coalition-proof equilibria.;
Other versions of this item:
- Matthias Wrede, 2004. "Small States, Large Unitary States and Federations," Public Choice, Springer, Springer, vol. 119(1_2), pages 219-240, 04.
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