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Multi-level Finance and the Euro Crisis

Multi-level Finance and the Euro Crisis

Causes and Effects

Studies in Fiscal Federalism and State-local Finance series

Edited by Ehtisham Ahmad, Massimo Bordignon and Giorgio Brosio

Representing a unique contribution to the analysis and discussion of the unfolding Eurozone crisis in terms of the relationship between central and local government, this book addresses a number of important fiscal and political economy questions. To what extent have local and regional governments contributed to the crisis? To what degree have subnational services and investments borne the brunt of the adjustments? How have multi-level fissures affected tensions between different levels of government from the supranational to the local? This volume covers these and many other critical issues that have been largely ignored despite their relevance.

Chapter 12: Clientelistic politics and multilevel finance: some implications for regional inequality and growth

Alex Mourmouras and Peter Rangazas

Subjects: economics and finance, public finance


The persistence of backward regions in generally fast-growing middle- and high-income countries in Europe and elsewhere has been a longstanding policy concern during the last half-century. Regional incomes diverged, or certainly have not converged, since the 1970s (Arcalean et al., 2012; Sacchi and Salotti, 2011). Concerns over persistent regional differences in levels of economic development led to increased regional transfers over time. The acceleration of regional economic and financial integration in the 1980s and 1990s helped raise the level of transfers to backward regions. As countries became more integrated, access to global capital markets improved dramatically, and borrowing costs came down to record lows, helping raise domestic transfers to backward regions. Countries with backward regions received additional ‘structural’ or ‘cohesion’ funding from supranational entities to help them develop poor areas as a quid pro quo for agreeing to reduce barriers to trade, investment and capital flows.

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