We study the organization of federations - or international unions - which decide together the provision of certain public goods. The benefit of centralization depends on the internalization of the spillovers, that of decentralization on the adaptability to local differences. We individuate as an optimal institutional design a form of fiscal federalism based on decentralization of expenditures and a system of subsidies and transfers between countries. Since this solution can be politically unfeasible, we study institutional compromises between a centralized federation and a decentralized one. 'Flexible unions' and federal mandates in which both the state and federal levels are involved in providing public goods are typically superior to complete centralization and politically feasible. Finally, we study the effects of a qualified majority voting rule in a centralized system: we find that it can be a useful device to correct a bias toward 'excessive' union level activism.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
8646.
Length: Date of creation: Dec 2001 Date of revision: Handle: RePEc:nbr:nberwo:8646
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Find related papers by JEL classification: H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
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Alberto Alesina & Romain Wacziarg, 1999.
"Is Europe Going Too Far?,"
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[Downloadable!] (restricted)
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Torsten Persson & Gerard Roland & Guido Tabellini, .
"Comparative Politics and Public Finance,"
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114, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
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Alberto Alesina & Ignazio Angeloni & Ludger Schuknecht, 2001.
"What Does the European Union Do?,"
NBER Working Papers
8647, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Other versions:
Alberto Alesina & Ignazio Angeloni & Ludger Schuknecht, 2005.
"What does the European Union do?,"
Public Choice,
Springer, vol. 123(3), pages 275-319, June.
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Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
Alberto Alesina & Ignazio Angeloni & Ludger Schuknecht, 2005.
"What does the European Union do?,"
Public Choice,
Springer, vol. 123(3), pages 275-319, June.
[Downloadable!] (restricted)