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Institutional Rules for Federations

  • Alberto Alesina
  • Ignazio Angeloni
  • Federico Etro

We study the organization of federations — or international unions — which decide together the provision of certain public goods. The benefit of centralization depends on the internalization of the spillovers, that of decentralization on the adaptability to local differences. We individuate as an optimal institutional design a form of fiscal federalism based on decentralization of expenditures and a system of subsidies and transfers between countries. Since this solution can be politically unfeasible, we study institutional compromises between a centralized federation and a decentralized one. “Flexible unions” and federal mandates in which both the state and federal levels are involved in providing public goods are typically superior to complete centralization and politically feasible. Finally, we study the effects of a qualified majority voting rule in a centralized system: we find that it can be a useful device to correct a bias toward “excessive” union level activism.

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File URL: http://www.economics.harvard.edu/pub/hier/2001/HIER1940.pdf
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Paper provided by Harvard - Institute of Economic Research in its series Harvard Institute of Economic Research Working Papers with number 1940.

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Date of creation: 2001
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Handle: RePEc:fth:harver:1940
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  1. Alesina, Alberto & Wacziarg, Romain, 1998. "Openness, country size and government," Journal of Public Economics, Elsevier, vol. 69(3), pages 305-321, September.
  2. Alberto Alesina & Ignazio Angeloni & Ludger Schuknecht, 2002. "What Does the European Union Do?," EUI-RSCAS Working Papers 61, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
  3. Alesina, Alberto F & Angeloni, Ignazio & Etro, Federico, 2001. "The Political Economy of International Unions," CEPR Discussion Papers 3117, C.E.P.R. Discussion Papers.
  4. Torsten Persson & Gerard Roland & Guido Tabellini, 2000. "Comparative Politics and Public Finance," Journal of Political Economy, University of Chicago Press, vol. 108(6), pages 1121-1161, December.
  5. Alberto Alesina & Romain Wacziarg, 1997. "Openness, Country Size and the Government," NBER Working Papers 6024, National Bureau of Economic Research, Inc.
  6. Wallace E. Oates, 1999. "An Essay on Fiscal Federalism," Journal of Economic Literature, American Economic Association, vol. 37(3), pages 1120-1149, September.
  7. Persson, Torsten & Roland, Gerard & Tabellini, Guido, 1997. "Separation of Powers and Political Accountability," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1163-1202, November.
  8. Robert P. Inman & Daniel L. Rubinfeld, 1998. "Subsidiarity and the European Union," NBER Working Papers 6556, National Bureau of Economic Research, Inc.
  9. Wacziarg, Romain & Alesina, Alberto, 1999. "Is Europe Going Too Far?," Scholarly Articles 4553012, Harvard University Department of Economics.
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