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Federal Fiscal Constitutions: Risk Sharing and Redistribution

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  • Persson, Torsten
  • Tabellini, Guido

Abstract

This paper studies the political and economic determinants of regional public transfers. Specifically, it focuses on how such transfers are shaped by alternative fiscal constitutions, where a constitution is an allocation of fiscal instruments across different levels of governments plus a procedure for the collective choice of these instruments. Realistic restrictions on fiscal instruments introduce a trade-off between risk sharing and redistribution. Different constitutions produce very different results. In particular, a federal social insurance scheme, chosen by voting, provides overinsurance, whereas an intergovernmental transfer scheme, chosen by bargaining, provides underinsurance. Copyright 1996 by University of Chicago Press.

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  • Persson, Torsten & Tabellini, Guido, 1996. "Federal Fiscal Constitutions: Risk Sharing and Redistribution," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 979-1009, October.
    • Handle: RePEc:ucp:jpolec:v:104:y:1996:i:5:p:979-1009
    DOI: 10.1086/262049
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    References listed on IDEAS

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