Fiscal Equalization and Political Conflict
AbstractIn this paper we analyze the political viability of equalization rules in the context of a decentralized country. We explore the idea that when equalization rules are perceived as unfair, regions may initiate a political conflict. Regions are formed by identical individuals who, through lobbying, try to obtain a higher share from the (equalization) pool of resources. 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 and the relative size of the regions. When regional budgets are used to provide pure public goods, full fiscal equalization is politically feasible. However, fiscal equalization is not immune to conflict when budgets are used to provide private goods or a linear combination of private and public goods. The likelihood of political conflict decreases as the regions become similar in size.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Network of European Peace Scientists in its series NEPS Working Papers with number 9/2012.
Length: 17 pages
Date of creation: 19 Oct 2012
Date of revision:
political conflict; lobbying; fiscal equalization; social decision rules;
Other versions of this item:
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances
- H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
- R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-10-27 (All new papers)
- NEP-CDM-2012-10-27 (Collective Decision-Making)
- NEP-PBE-2012-10-27 (Public Economics)
- NEP-POL-2012-10-27 (Positive Political Economics)
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.:
- Joan Esteban & Debraj Ray, 2001.
"Social decision rules are not immune to conflict,"
Economics of Governance,
Springer, vol. 2(1), pages 59-67, 03.
- Rama, Martin & Tabellim, Guido, 1998.
"Lobbying by capital and labor over trade and labor market policies,"
European Economic Review,
Elsevier, vol. 42(7), pages 1295-1316, July.
- 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.
- 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.
- DESMET, Klaus & LE BRETON, Michel & ORTUNO-ORTIN, Ignacio & WEBER, Shlomo, 2006. "Nation formation and genetic diversity," CORE Discussion Papers 2006095, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Desmet, Klaus & Le Breton, Michel & Ortuno-Ortin, Ignacio, 2006. "Nation Formation and Genetic Diversity," IDEI Working Papers 133, Institut d'Économie Industrielle (IDEI), Toulouse.
- 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.
- 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.
- Jackson, Matthew O. & Morelli, Massimo, .
"Political bias and war,"
1247, California Institute of Technology, Division of the Humanities and Social Sciences.
- Stergios Skaperdas, 1996.
"Contest success functions (*),"
Springer, vol. 7(2), pages 283-290.
- 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.
- Joan Esteban & Debraj Ray, 2006. "Inequality, Lobbying, and Resource Allocation," American Economic Review, American Economic Association, vol. 96(1), pages 257-279, March.
- 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.
- Boadway,Robin & Shah,Anwar, 2009.
Cambridge University Press, number 9780521518215, April.
- Mohtadi, Hamid & Roe, Terry, 1998. "Growth, lobbying and public goods," European Journal of Political Economy, Elsevier, vol. 14(3), pages 453-473, August.
- Esteban, Joan & Ray, Debraj, 1999. "Conflict and Distribution," Journal of Economic Theory, Elsevier, vol. 87(2), pages 379-415, August.
- Persson, Torsten & Tabellini, Guido, 1996. "Federal Fiscal Constitutions: Risk Sharing and Moral Hazard," Econometrica, Econometric Society, vol. 64(3), pages 623-46, May.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Vincenzo Bove).
If references are entirely missing, you can add them using this form.