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Fiscal equalization and political conflict

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  • Maria Cubel

    (University of Barcelona & IEB)

Abstract

In this paper we analyze the political viability of equalization rules in the context of a decentralized country. In concrete terms, we suggest that when equalization devices are perceived as unfair by one or more regions, political conflict may emerge as a result. Political conflict is analysed through a non cooperative game. Regions are formed by identical individuals who, through lobbying, try to impose their regional preferences on the rest of the country, and political conflict is measured as the total contribution to lobbying. We conclude that the onset of conflict depends on the degree of publicness of the regional budget. When regional budgets are used to provide pure public goods, proportional equalization is politically feasible. However, no equalization rule is immune to conflict when budgets are used to provide private goods or a linear combination of private and public goods.

Suggested Citation

  • Maria Cubel, 2010. "Fiscal equalization and political conflict," Working Papers 2010/9, Institut d'Economia de Barcelona (IEB).
    • Handle: RePEc:ieb:wpaper:doc2010-9
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    Cited by:

    1. Sakshi Gupta & Ram Singh, 2018. "On Existence and Properties of Pure-strategy Equilibria under Contests," Working papers 288, Centre for Development Economics, Delhi School of Economics.

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    More about this item

    Keywords

    political conflict; lobbying; equalization grants; social decision rules;
    All these keywords.

    JEL classification:

    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

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