If you want me to stay, pay’: a model of asymmetric federalism in centralised countries

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Date
2015-04-01
Author
Claeys, Peter Guenther Antoon
Federico, Martire
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info:eu-repo/semantics/publishedVersion
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Abstract
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Highly centralised countries like Italy and Spain have devolved fiscal power to regions in an asymmetric way. Some well-off regions get transfers that turn them into net recipients of the fiscal system. We demonstrate in a political economy model of fiscal federalism that, in centralised countries, side-payments are used to compensate regions that are set back by the fiscal system and can credibly threaten to secede. Compensation blocks political negotiation on alternative—more efficient—fiscal systems. We study two regions, Valle d'Aosta in Italy and País Vasco in Spain, as an example.
 
URI
https://doi.org/10.1068/c11318r
http://hdl.handle.net/11531/76914
If you want me to stay, pay’: a model of asymmetric federalism in centralised countries
Tipo de Actividad
Artículos en revistas
ISSN
0263-774X
Palabras Clave
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fiscal federalism, equalisation, decentralisation, secession, transfer schemes, side-payment, political economy, Valle d’Aosta, País Vasco1 IntroductionFormerly highly centralised countries like Italy and Spain have made gradual steps towards devolution. A peculiar feature of this process is the asymmetry in the fiscal treatment of different regions. Differentiation has primarily been justified by linguistic and cultural diversity, geographical circumstances, or economic backwardness. But some well-off regions receive financial resources above those of equally rich regions. They obtain special arrangements that turn them into net recipients of the fiscal system.We argue that, in centralised countries, a government that maintains a rather strict control on local fiscal autonomy agrees to compensate regions that are set back in the fiscal system and can credibly threaten to secede. We extend a political economy model of fiscal federalism with majority voting between regions to allow for secession and side-payments, following Lockwood (2006) and Harstad (2008). We derive conditions under which asymmetric fiscal arrangements or secession happen. We demonstrate that asymmetric federalism is an inefficient way of devolution as the compensation simply redistributes the available resources under centralisation.
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Except where otherwise noted, this item's license is described as Creative Commons Reconocimiento-NoComercial-SinObraDerivada España