Causes and Effects
Studies in Fiscal Federalism and State-local Finance series
Edited by Ehtisham Ahmad, Massimo Bordignon and Giorgio Brosio
Chapter 12: Clientelistic politics and multilevel finance: some implications for regional inequality and growth
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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