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The Political Economy of Sustainable Federations

  • Mark Gradstein
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    This paper studies a constitutional framework that enables sustainable federative agreements. In the model, districts decide on local policies and envision the possibility of entering a federation. Focusing on rules for legislative bargaining in the federation, I find that a non-egalitarian bargaining rule, which assigns policy making power to one of the district's representatives is welfare inferior to the decentralized status quo. In contrast, under an egalitarian bargaining procedure, federation yields a welfare superior outcome. The analysis indicates the desirability of making such egalitarian bargaining rules credible.

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    File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2000/wp-cesifo-2000-07/cesifo_wp315.pdf
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    Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 315.

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    Date of creation: 2000
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    Handle: RePEc:ces:ceswps:_315
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    1. Lockwood, B., 1998. "Distributive Politics and the Benefits of Decentralization," The Warwick Economics Research Paper Series (TWERPS) 513, University of Warwick, Department of Economics.
    2. 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.
    3. Besley, Timothy & Coate, Stephen, 2003. "Centralized versus decentralized provision of local public goods: a political economy approach," Journal of Public Economics, Elsevier, vol. 87(12), pages 2611-2637, December.
    4. Buchanan, James M & Faith, Roger L, 1987. "Secession and the Limits of Taxation: Toward a Theory of Internal Exit," American Economic Review, American Economic Association, vol. 77(5), pages 1023-31, December.
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    6. Alberto Alesina & Enrico Spolaore, 1997. "On the Number and Size of Nations," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1027-1056.
    7. Cremer, Jacques & Palfrey, Thomas R., 1996. "In or out?: Centralization by majority vote," European Economic Review, Elsevier, vol. 40(1), pages 43-60, January.
    8. Mark Gradstein & Moshe Justman, 2002. "Education, Social Cohesion, and Economic Growth," American Economic Review, American Economic Association, vol. 92(4), pages 1192-1204, September.
    9. Warneryd, Karl, 1998. "Distributional conflict and jurisdictional organization," Journal of Public Economics, Elsevier, vol. 69(3), pages 435-450, September.
    10. William Easterly & Ross Levine, 1997. "Africa's Growth Tragedy: Policies and Ethnic Divisions," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1203-1250.
    11. Stephen Knack & Philip Keefer, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1251-1288.
    12. Robert H. Bates & Avner Greif & Margaret Levi & Jean-Laurent Rosenthal, 1998. "Analytic Narratives," Economics Books, Princeton University Press, edition 1, number 6355, 06-2016.
    13. Robert P. Inman & Daniel L. Rubinfeld, 1997. "Rethinking Federalism," Journal of Economic Perspectives, American Economic Association, vol. 11(4), pages 43-64, Fall.
    14. Persson, Torsten & Tabellini, Guido, 1994. "Does centralization increase the size of government?," European Economic Review, Elsevier, vol. 38(3-4), pages 765-773, April.
    15. Ellingsen, Tore, 1998. "Externalities vs internalities: a model of political integration," Journal of Public Economics, Elsevier, vol. 68(2), pages 251-268, May.
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