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Why is Argentina’s Fiscal Federalism so Inefficient? Entering the Labyrinth

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Abstract

A long-standing concern in political economy is whether outcomes are efficient in political equilibrium. Recent contributions have examined the efficiency/inefficiency of policy choices from a theoretical point of view. The aim of this paper is to examine such issue empirically. Building on existing "economic" diagnoses that highlight the deficient incentives present in Argentina’s Federal Tax-Sharing Agreement the paper will attempt to understand the politics behind its adoption and persistence. We suggest an explanation based on the transaction costs of Argentina’s political market. Although potentially Pareto-improving policies could have been adopted, they were not introduced because of the uncertainty over the future status of today’s bargains, and given the lack of institutions to enforce bargains among the political actors. The paper concludes offering some preliminary ideas for institutional engineering: what governance structures could help reduce these transaction costs? The purpose is to create an institutional framework in which political actors could negotiate among themselves, ensuring the enforceability of agreements, in order to achieve more efficient outcomes.

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  • Sebastian M. Saiegh & Mariano Tommasi, 1999. "Why is Argentina’s Fiscal Federalism so Inefficient? Entering the Labyrinth," Journal of Applied Economics, Universidad del CEMA, vol. 2, pages 169-209, May.
  • Handle: RePEc:cem:jaecon:v:2:y:1999:n:1:p:169-209
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    Cited by:

    1. María Laura Alzúa y Carolina López, 2014. "The Long and Winding Road Towards Fiscal Decentralization," Económica, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata, vol. 60, pages 3-43, January-D.
    2. Mariano Tommasi & Miguel Braun, 2002. "Fiscal Rules for Subnational Governments. Some Organizing Principles and Latin American Experiences," Working Papers 44, Universidad de San Andres, Departamento de Economia, revised Mar 2002.
    3. Russell Cooper & Hubert Kempf, 2000. "Designing Stabilization Policy in a Monetary Union," Econometric Society World Congress 2000 Contributed Papers 0529, Econometric Society.
    4. repec:cup:apsrev:v:108:y:2014:i:01:p:144-168_00 is not listed on IDEAS
    5. Enrico Spolaore, 2010. "Federalism, Regional Redistribution and Country Stability," Chapters,in: The Political Economy of Inter-Regional Fiscal Flows, chapter 13 Edward Elgar Publishing.
    6. repec:gig:joupla:v:6:y:2014:i:1:p:3-44 is not listed on IDEAS
    7. Russell Cooper & Hubert Kempf & Dan Peled, 2008. "Is It Is Or Is It Ain'T My Obligation? Regional Debt In A Fiscal Federation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(4), pages 1469-1504, November.
    8. Santiago Urbiztondo & Marcela Cristini & Cynthia Moskovits & Sebastián Saiegh, 2009. "The Political Economy of Productivity in Argentina: Interpretation and Illustration," IDB Publications (Working Papers) 1119, Inter-American Development Bank.
    9. Smith, Heidi Jane M. & Revell, Keith D., 2016. "Micro-Incentives and Municipal Behavior: Political Decentralization and Fiscal Federalism in Argentina and Mexico," World Development, Elsevier, vol. 77(C), pages 231-248.
    10. Daniel Artana & Sebastián Auguste & Marcela Cristini & Cynthia Moskovits & Ivana Templado, 2012. "Sub-National Revenue Mobilization in Latin American and Caribbean Countries: The Case of Argentina," IDB Publications (Working Papers) 3887, Inter-American Development Bank.
    11. Stéphane Colliac, 2005. "Monnaies parallèles provinciales et fédéralisme budgétaire en Argentine," Revue d'Économie Financière, Programme National Persée, vol. 81(4), pages 251-269.
    12. Lavrov, Aleksei & Litwack, John & Sutherland, Douglas, 2001. "Fiscal federalist relations in Russia: a case for subnational autonomy," MPRA Paper 26537, University Library of Munich, Germany.
    13. Anwar Shah, 2006. "Fiscal decentralization and macroeconomic management," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 13(4), pages 437-462, August.
    14. Russell W. Cooper & Hubert Kempf, 2001. "Dollarization and the conquest of hyperinflation in divided societies," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 3-12.
    15. Meloni, Osvaldo, 2011. "Budget Manipulation and Vertical Fiscal Imbalance," MPRA Paper 50694, University Library of Munich, Germany.
    16. Emmanuel Abuelafia & Sergio Berensztein & Miguel Braun & Luciano di Gresia, 2005. "Who Decides on Public Expenditures? A Political Economy Analysis of the Budget Process: The Case of Argentina," Public Economics 0511004, EconWPA.
    17. José Bercoff & Osvaldo Meloni, 2009. "Federal budget allocation in an emergent democracy: evidence from Argentina," Economics of Governance, Springer, vol. 10(1), pages 65-83, January.
    18. Qian, Rong, 2012. "Why do some countries default more often than others ? the role of institutions," Policy Research Working Paper Series 5993, The World Bank.
    19. Malesky, Edmund J. & Nguyen, Cuong Viet & Tran, Anh, 2014. "The Impact of Recentralization on Public Services: A Difference-in-Differences Analysis of the Abolition of Elected Councils in Vietnam," American Political Science Review, Cambridge University Press, vol. 108(01), pages 144-168, February.
    20. Shah, Anwar, 2005. "Fiscal decentralization and fiscal performance," Policy Research Working Paper Series 3786, The World Bank.

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