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If you want me to stay, pay

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  • Peter Claeys

    (Faculty of Economics, University of Barcelona)

Abstract

Devolution of political power is constantly on the political agenda in both Italy and Spain. Fiscal policy in these countries has granted specific privileges to some regions. Valle d’Aosta/Vallée d’Aoste (VdA) and País Vasco/Euskadi (PV) have an extensive say over spending decisions, and receive nearly all regional tax revenues. Although both VdA and PV are among the richest regions in each country, both are net beneficiaries of the fiscal equalisation system. This preferential treatment is the outcome of a fiscal system with limits on taxing power and debt issuance, and is meant as a compensation for the lack of autonomy. It so prevents calls for more fiscal autonomy, or even outright secession. The economic effects of this asymmetric federalism are negative. Although partial equalisation reduces excessive redistribution built in the fiscal equalisation system, more autonomy could pay off with more efficient government. Asymmetric federalism moreover creates a political impasse in the negotiation of a more efficient tax system and financing arrangement.

Suggested Citation

  • Peter Claeys, 2011. "If you want me to stay, pay," IREA Working Papers 201101, University of Barcelona, Research Institute of Applied Economics, revised Feb 2011.
    • Handle: RePEc:ira:wpaper:201101
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    File URL: http://www.ub.edu/irea/working_papers/2011/201101.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    fiscal federalism; equalisation; secession; Valle d’Aosta; País Vasco. JEL classification:H70; H73; H77;
    All these keywords.

    JEL classification:

    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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