Federalism and Inter-regional redistribution

Why do some federations implement highly progressive intergovernmental transfer schemes while others do not? First, this essay establishes some stylized facts, using provincial-level data from nine federations to measure the extent of inter-regional redistribution achieved through intergovernmental transfers in each country. Second, it explores sources of institutional variation that might help account for these persistent cross-country differences, focusing on theories of legislative bargaining, representation, and the distribution of income across regions. Third, it examines the historical conditions under which the basic institutions of federalism were selected

The dilemma of fiscal federalism: grants and fiscal performance around the world

This paper uses cross-national data to examine the effects of federal fiscal and political institutions on the fiscal performance of subnational governments. Balanced budgets among subnational governments are found when either (1) the center imposes strong borrowing restrictions or (2) subnational governments have both wide-ranging taxing and borrowing autonomy. Large and persistent aggregate deficits occur when subnational governments are simultaneously dependent on general-purpose intergovernmental transfers and free to borrow-a combination found most frequently among constituent units in federations. Time-series cross-section analysis reveals that as countries increase their reliance on transfers over time, subnational and overall fiscal performance decline, especially when subnational governments have easy access to credit. These findings illuminate a key dilemma of fiscal federalism and a more precise notion of its dangers: When constitutionally constrained or politically fragmented central governments take on heavy co-financing obligations, they cannot credibly commit to ignore the fiscal problems of lower-level governments.Departamento de Economí

Representation and regional redistribution in federations

This paper examines the role of institutions of territorial representation in shaping long-term patterns of inter-regional redistribution within federations. A simple legislative bargaining model with endogenous taxation suggests that over-represented states should be favored in the distribution of inter-governmental grants regardless of their income level. We demonstrate that a striking relationship between legislative representation and grants holds up in a diverse group of federations from around the world. The relationship appears not to be an artifact of economic development, population size, population density, or the historical conditions under which the federal bargain was struck. Furthermore, we suggest that the attractiveness of poor states as coalition partners implies that intergovernmental transfer systems will often tend toward progressivity under equal apportionment, but the systematic over-representation of wealthy (or poor) states can undermine (or bolster) this logic

A political economy model of the vertical fiscal gap and vertical fiscal imbalances in a federation

We develop a political economy model of intergovernmental transfers. Vertical fiscal balance occurs in a federation when the ratio of the marginal benefit of the public services provided by the federal and provincial governments is equal to their relative marginal costs of production. With majority voting in national elections, the residents of a "pivotal province" will determine the level of transfers such that the residents of that province achieve a vertical fiscal balance in spending by the two levels of government. We test the predictions of the model using Canadian time series data and cross-section data for nine federations

FEDERALISMO E DESCENTRALIZAÇÃO EM PERSPECTIVA COMPARADA: SOBRE SIGNIFICADOS E MEDIDAS

Este artigo revê e redireciona a literatura empírica comparada sobre as causas e conseqüências da descentralização e do federalismo. A primeira geração de estudos concebia a descentralização como um jogo de soma zero, de transferência de autoridade do centro para os governos subnacionais; partia das premissas da economia de bem-estar social e da teoria da escolha pública e empregava formas pouco precisas para medir a descentralização do gasto e o federalismo. Em contraste, ao definir diversas modalidades de federalismo e de descentralizações fiscal, política e de políticas; ao medi-las e ao explorar inte-rrelações entre países e ao longo do tempo, este trabalho apresenta um retrato mais preciso da descentralização e do federalismo, que fornece subsídios para explicar a crescente disjunção entre a teoria e as evidências encontradas em diferentes países. Assim, aponta na direção de uma segunda geração de trabalhos empíricos mais sofisticados, que levam a política e as instituições a sério. COMPARATIVE FEDERALISM AND DECENTRALIZATION: ON MEANING AND MEASUREMENT Abstract This article reviews and redirects the cross-country empirical literature on the causes and consequences of decentralization and federalism. A first generation of studies viewed decentralization as a simple zero-sum transfer of authority from the center to subnational governments, drew upon the assumptions of welfare economics and public choice theory, and employed blunt measures of expenditure decentralization and federalism. By defining several alternative forms of federalism and fiscal, policy, and political decentralization, then measuring them and exploring interrelationships across countries and over time, this paper paints more detailed pictures of decentralization and federalism that help explain the growing disjuncture between theory and cross-national evidence, pointing the way toward a second generation of more nuanced empirical work that takes politics and institutions seriously. FEDERALISME ET DECENTRALISATION EN PERSPECTIVE COMPAREE : SUR LES SENS ET LES MESURES Résumé Cet article revoit et reoriente la littérature empirique comparée sur les causes et conséquences de la décentralisation et du fédéralisme. La « première génération » détudes concevait la décentralisation comme un jeu de résultat zéro, de transfert dautorité du centre en direction des gouvernements sousnationaux ; elle partait des prémisses de léconomie du bien-être social et de la théorie du choix public et employait des formes peu précises pour mesurer la décentralisation de la dépense et le fédéralisme. A lopposé, en précisant les diverses formes de fédéralisme et de décentralisation fiscale, politique et de politiques, en les mesurant et en exploitant les relations entre pays et au cours des temps, ce travail présente un portrait plus précis de la décentralisation et du fédéralisme, ce qui contribue à expliquer la croissante disjonction entre la théorie et les évidences trouvées dans différents pays. Ainsi, il pointe vers une « seconde génération » détudes empiriques plus sophistiquées, qui prenent la politique et les institutions au sérieux

The dilemma of fiscal federalism: grants and fiscal performance around the world

This paper uses cross-national data to examine the effects of federal fiscal and political institutions on the fiscal performance of subnational governments. Balanced budgets among subnational governments are found when either (1) the center imposes strong borrowing restrictions or (2) subnational governments have both wide-ranging taxing and borrowing autonomy. Large and persistent aggregate deficits occur when subnational governments are simultaneously dependent on general-purpose intergovernmental transfers and free to borrow-a combination found most frequently among constituent units in federations. Time-series cross-section analysis reveals that as countries increase their reliance on transfers over time, subnational and overall fiscal performance decline, especially when subnational governments have easy access to credit. These findings illuminate a key dilemma of fiscal federalism and a more precise notion of its dangers: When constitutionally constrained or politically fragmented central governments take on heavy co-financing obligations, they cannot credibly commit to ignore the fiscal problems of lower-level governments.Departamento de Economí