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Interregional transfers, group loyalty and the decentralization of redistribution

Listed author(s):
  • Sabine Flamand


    (Universitat Autònoma de Barcelona)

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    We study the decentralization of redistributive taxation in a political economy model assuming regional heterogeneity regarding both group identity and average income. If a centralized system permits a beneficial pooling of national resources, it might also decrease the degree of solidarity in the society. With no group loyalty, centralization Pareto-dominates decentralization even when regions are not identical. Furthermore, increased heterogeneity need not increase the relative efficiency of decentralization. If regions are equally rich, centralization Pareto-dominates decentralization whenever group loyalty is not perfect. Finally, centralization is always more efficient than decentralization even when allowing for interregional transfers.

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    Paper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2010/37.

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    Length: 47 pages
    Date of creation: 2010
    Handle: RePEc:ieb:wpaper:2010/9/doc2010-37
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