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Fiscal equalization and political conflict

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  • Maria Cubel

    ()
    (University of Barcelona & IEB)

Abstract

In this paper we analyze the political viability of equalization rules in the context of a decentralized country. In concrete terms, we suggest that when equalization devices are perceived as unfair by one or more regions, political conflict may emerge as a result. Political conflict is analysed through a non cooperative game. Regions are formed by identical individuals who, through lobbying, try to impose their regional preferences on the rest of the country, and political conflict is measured as the total contribution to lobbying. We conclude that the onset of conflict depends on the degree of publicness of the regional budget. When regional budgets are used to provide pure public goods, proportional equalization is politically feasible. However, no equalization rule is immune to conflict when budgets are used to provide private goods or a linear combination of private and public goods.

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Bibliographic Info

Paper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2010/9.

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Length: 21 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:ieb:wpaper:2010/4/doc2010-9

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Keywords: political conflict; lobbying; equalization grants; social decision rules;

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  1. Joan Esteban & Debraj Ray, 2006. "Inequality, Lobbying, and Resource Allocation," American Economic Review, American Economic Association, vol. 96(1), pages 257-279, March.
  2. Martín Rama & Guido Tabellini, . "Lobbying by Capital and Labor over Trade and Labor Market Policies," Working Papers 94, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  3. Boadway,Robin & Shah,Anwar, 2009. "Fiscal Federalism," Cambridge Books, Cambridge University Press, number 9780521732116, April.
  4. Desmet, Klaus & Le Breton, Michel & Ortuño-Ortín, Ignacio & Weber, Shlomo, 2006. "Nation Formation and Genetic Diversity," CEPR Discussion Papers 5918, C.E.P.R. Discussion Papers.
  5. Esteban, Joan & Ray, Debraj, 1999. "Conflict and Distribution," Journal of Economic Theory, Elsevier, vol. 87(2), pages 379-415, August.
  6. Stergios Skaperdas, 1996. "Contest success functions (*)," Economic Theory, Springer, vol. 7(2), pages 283-290.
  7. Persson, Torsten & Tabellini, Guido, 1996. "Federal Fiscal Constitutions: Risk Sharing and Moral Hazard," Econometrica, Econometric Society, vol. 64(3), pages 623-46, May.
  8. Le Breton, Michel & Weber, Shlomo, 2003. "The Art of Making Everybody Happy : How to Prevent a Secession," IDEI Working Papers 164, Institut d'Économie Industrielle (IDEI), Toulouse.
  9. Le Breton, Michel & Weber, Shlomo, 2003. "Secession-Proof Cost Allocations and Stable Group Structures in Models of Horizontal Differentiation," IDEI Working Papers 210, Institut d'Économie Industrielle (IDEI), Toulouse.
  10. Michel Le Breton & Shlomo Weber, 2003. "The Art of Making Everybody Happy: How to Prevent a Secession," IMF Staff Papers, Palgrave Macmillan, vol. 50(3), pages 4.
  11. Mohtadi, Hamid & Roe, Terry, 1998. "Growth, lobbying and public goods," European Journal of Political Economy, Elsevier, vol. 14(3), pages 453-473, August.
  12. Joan Esteban & Debraj Ray, 2001. "Social decision rules are not immune to conflict," Economics of Governance, Springer, vol. 2(1), pages 59-67, 03.
  13. Jackson, Matthew O. & Morelli, Massimo, . "Political bias and war," Working Papers 1247, California Institute of Technology, Division of the Humanities and Social Sciences.
  14. Robert Fenge & Jakob von Weizsäcker, 2001. "How Much Fiscal Equalization? A Constitutional Approach," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 157(4), pages 623-, December.
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