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Fiscal Federalism and Endogenous Lobbies' Formation

  • Massimo Bordignon
  • Luca Colombo
  • Umberto Galmarini

We study lobbying behavior by firms in a two-region economy, with either centralized or decentralized provision of profit-enhancing local public goods. Firms compete either in the market, lobbying for public good provision once entered in a market, or for the market, lobbying to gain ccess to it. When firms compete in the market, we show that lobbying is unambiguously less disruptive or social welfare under decentralization. Moreover, foreign rather than domestic private nterests may be more powerful in a.ecting regional policies. On the contrary, when firms compete or the market, lobbying is mostly e.ective under decentralization, since local firms always end p forming a local monopoly. However, we show that an institutional setting in which competencies re split between the center and the periphery may dominate either full centralization or full ecentralization or both.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1017.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_1017
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  1. Alberto Alesina & Ignazio Angeloni & Federico Etro, 2005. "International Unions," American Economic Review, American Economic Association, vol. 95(3), pages 602-615, June.
  2. Michela Redoano, 2007. "Does Centralization Affect the Number and Size of Lobbies?," CESifo Working Paper Series 1968, CESifo Group Munich.
  3. Felli, L. & Merlo, A., 2000. "Endogenous Lobbying," Working Papers 00-04, C.V. Starr Center for Applied Economics, New York University.
  4. Fisman, Raymond & Gatti, Roberta, 2002. "Decentralization and corruption: evidence across countries," Journal of Public Economics, Elsevier, vol. 83(3), pages 325-345, March.
  5. Wacziarg, Romain & Spolaore, Enrico & Alesina, Alberto, 2000. "Economic Integration and Political Disintegration," Scholarly Articles 4553029, Harvard University Department of Economics.
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  8. Massimo Bordignon & Paolo Manasse & Guido Tabellini, 2001. "Optimal Regional Redistribution under Asymmetric Information," American Economic Review, American Economic Association, vol. 91(3), pages 709-723, June.
  9. de Melo, Jaime & Panagariya, Arvind & Rodrik, Dani, 1993. "The new regionalism : a country perspective," Policy Research Working Paper Series 1094, The World Bank.
  10. Bolton, Patrick & Roland, Gerard & Spolaore, Enrico, 1996. "Economic theories of the break-up and integration of nations," European Economic Review, Elsevier, vol. 40(3-5), pages 697-705, April.
  11. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
  12. Mookherjee, Dilip, 1984. "Optimal Incentive Schemes with Many Agents," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 433-46, July.
  13. Ma, Ching-To, 1988. "Unique Implementation of Incentive Contracts with Many Agents," Review of Economic Studies, Wiley Blackwell, vol. 55(4), pages 555-72, October.
  14. Michael J. Keen & Christos Kotsogiannis, 2002. "Does Federalism Lead to Excessively High Taxes?," American Economic Review, American Economic Association, vol. 92(1), pages 363-370, March.
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