Inequality and the Territorial Fragmentation of Solidarity

A long tradition of research has shown decentralized political structures as an important cause behind lower levels of redistribution and higher levels of inequality. This article offers an alternative interpretation of the association between fragmented fiscal structures and higher levels of inequality. I argue that the distributive effects of decentralization depend on the preexisting territorial patterns of inequality. Therefore, the political choice between alternative fiscal structures is largely driven by their expected distributive consequences. As a result, the territorial structure of inequality becomes an important factor to explain why some fiscal structures are more integrated than others. Two mechanisms link regional income distributions and preferences about the decentralization of redistributive policy: differences in the demand for redistribution associated with interregional income differences, and differences in the demand for social insurance associated with the incidence of labor market risks. I test the argument using a data set of fourteen countries in the Organization for Economic Cooperation and Development (OECD) over the period 1980–2000. In addition, I illustrate the potential of the approach by analyzing why social solidarity remains territorially fragmented in the European Union despite the fact that it has a common currency and a common market.Previous versions of this article were presented in seminars at Cornell University, Syracuse University, Duke University, and the 2005 APSA meetings. I benefited from comments in all these events. In addition, I thank Christopher Anderson, Tony Atkinson, Neal Beck, Carles Boix, Matt Cleary, Thomas R. Cusack, Alberto Diaz-Cayeros, Gösta Esping-Andersen, Kai Konrad, Mitchell Orenstein, Jonas Pontusson, Adam Przeworski, Jonathan Rodden, David Rueda, David Soskice, Ernesto Stein, Duane Swank, Daniel Treisman, Brian Taylor, Michael Wallerstein, and Erik Wibbels for their very helpful comments on earlier versions. Krishna Ayyangar provided excellent research assistance. Finally, I want to thank Lisa Martin and two anonymous reviewers for their very helpful suggestions. Financial support from the Juan March Institute, Nuffield College (Oxford), the Wissenschaftszentrum Berlin and the Center for Policy Research (Syracuse University) is gratefully acknowledged. The usual disclaimer applies.