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Fiscal Equalization and Political Conflict

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  • Cubel, Maria

    ()
    (University of Barcelona)

Abstract

In 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.

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Bibliographic Info

Paper provided by Network of European Peace Scientists in its series NEPS Working Papers with number 9/2012.

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Length: 17 pages
Date of creation: 19 Oct 2012
Date of revision:
Handle: RePEc:ris:nepswp:2012_009

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Web page: http://www.europeanpeacescientists.org/
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Keywords: political conflict; lobbying; fiscal equalization; social decision rules;

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  1. Joan Esteban & Debraj Ray, 2001. "Social decision rules are not immune to conflict," Economics of Governance, Springer, vol. 2(1), pages 59-67, 03.
  2. 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.
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  4. 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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  9. Joan Esteban & Debraj Ray, 2006. "Inequality, Lobbying, and Resource Allocation," American Economic Review, American Economic Association, vol. 96(1), pages 257-279, March.
  10. 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.
  11. Boadway,Robin & Shah,Anwar, 2009. "Fiscal Federalism," Cambridge Books, Cambridge University Press, number 9780521518215, April.
  12. Mohtadi, Hamid & Roe, Terry, 1998. "Growth, lobbying and public goods," European Journal of Political Economy, Elsevier, vol. 14(3), pages 453-473, August.
  13. Esteban, Joan & Ray, Debraj, 1999. "Conflict and Distribution," Journal of Economic Theory, Elsevier, vol. 87(2), pages 379-415, August.
  14. Persson, Torsten & Tabellini, Guido, 1996. "Federal Fiscal Constitutions: Risk Sharing and Moral Hazard," Econometrica, Econometric Society, vol. 64(3), pages 623-46, May.
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