Table of Contents

The Political Economy of Inter-Regional Fiscal Flows

The Political Economy of Inter-Regional Fiscal Flows

Measurement, Determinants and Effects on Country Stability

Studies in Fiscal Federalism and State–local Finance series

Edited by Núria Bosch, Marta Espasa and Albert Solé Ollé

Struggles over what a region receives, or should receive, from the budget of the central government are common to many countries. Discussions often focus on the measures of ‘net fiscal flows’ or ‘fiscal balances’ provided by the government or other actors. This unique book shows just how these flows are computed then interpreted and clarifies the often misunderstood economic and political motives that explain why some regions receive more monies than others.

Chapter 1: Inter-regional Fiscal Flows: Introduction to the Issues

Núria Bosch, Marta Espasa and Albert Solé Ollé

Subjects: economics and finance, public finance, politics and public policy, public policy

Extract

Núria Bosch, Marta Espasa and Albert Solé Ollé 1 INTRODUCTION In many countries, intergovernmental finance debates are typically embroiled in arguments as to how much each region receives or should receive from the central budget. Such behaviour might purely be a symptom of the opportunism that afflicts many countries, though it might just as equally reflect longstanding, and as yet unresolved, financial conflicts within the territory. At the practical level, this issue is made manifest through the measurement of inter-regional fiscal flows or ‘net fiscal flows’, that is, the difference between what the residents of a particular region receive in terms of public services and what they actually pay in taxes to the central government. The first objective of this book, therefore, is to attempt to make sense of the usefulness of computing inter-regional ‘fiscal balances’, and in so doing to provide some guidelines as to how best to interpret the various methodologies adopted and the results to which they give rise. This is done by reporting the experiences of a number of countries. We seek to provide answers to such questions as: Why compute inter-regional fiscal flows? Is there a correct methodology for such computations? How should inter-regional fiscal flows be interpreted? What is the role of central government in the provision of information for this exercise? Can such data help enlighten the debate (and ease the territorial conflict) or do they simply serve to add more fuel to the fire of discontent (and exacerbate the conflict)? However,...