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Transfers in a polarized country: bridging the gap between efficiency and stability

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  • HAIMANKO, Ori
  • LE BRETON, Michel
  • WEBER, Shlomo

Abstract

We consider a political economy model of country whose citizens have heterogeneous preferences for a national policy and some regions may contemplate a threat of secession. The country is efficient if its break-up into smaller countries leads to aggregate utility loss. We show that in an efficient country whose citizens' preferences exhibit a high degree of polarization, a threat of secession cannot be eliminated without interregional transfers. We also demonstrate that, if majority voting is used to determine the redistribution schemes within the country, then a high degree of polarization yields the full compensation scheme as the unique political equilibrium.

Suggested Citation

  • HAIMANKO, Ori & LE BRETON, Michel & WEBER, Shlomo, 2002. "Transfers in a polarized country: bridging the gap between efficiency and stability," LIDAM Discussion Papers CORE 2002018, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:2002018
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    More about this item

    Keywords

    tranfers; polarization; secession; e?ciency; stability; political equilibrium;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption

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