Federalism, Freedom of Movement, and Fiscal Equalization
AbstractIn this paper, we take up the question why a group of sovereign countries is willing to form a federation even if residents of the high-income region suspect potential immigrants to be net beneficiaries of the tax and transfer system. We argue that income uncertainty alone cannot satisfactorily explain the formation of federations, since in many existing and developing federations income differences are both large and persistent. In the model presented here remaining separated involves costs for the high-income region, which can be regarded as a proxy for the efficiency loss caused if mobile factors cannot reallocate. A fiscal equalization scheme that shares the resources saved by limiting costly migration between the regions can make both regions better off. --
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Bibliographic InfoPaper provided by Christian-Albrechts-University of Kiel, Department of Economics in its series Economics Working Papers with number 2003,06.
Date of creation: 2003
Date of revision:
Federalism; Migration; Fiscal Equalization;
Find related papers by JEL classification:
- D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
- H40 - Public Economics - - Publicly Provided Goods - - - General
- H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
- D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
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