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 3: Inter-regional Fiscal Flows: Interpretation Issues

François Vaillancourt

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


François Vaillancourt INTRODUCTION 1 The purpose of this chapter is to examine how fiscal flows to and from the central government towards a set of geographical entities and thus the fiscal balances that result should be interpreted. This task requires us to reflect on the measurement of fiscal balances, including the nature of the units for whom fiscal balances are calculated and the role of information providers; the interpretation of such balances, including their relationship with other balances (trade, migratory, environmental, etc.) and the determinants of these balances; and their interaction with fiscal federalisms arrangements, thus addressing the issues of vertical, horizontal and intergenerational imbalances. These three issues correspond to the three main parts of the chapter. An appendix presents original work with Marie-Eve Jutras on the determinants of fiscal balances in Canada over the 1966–2004 period. 2 THE MEASUREMENT OF FISCAL BALANCES; FOR WHOM, BY WHOM AND HOW Three issues are addressed in this first section of the chapter. First, for whom should fiscal balances be measured; second, who should do these calculations and third how do we carry out and evaluate the results of these calculations. 2.1 Fiscal Balances, for Whom? It may seem odd to ask for whom fiscal flows should be calculated as they are usually calculated for large subnational units. But the choices are numerous. Leaving aside data availability for a moment, one must decide for what subnational or sub EU area one wants to make the calculations and for what time period....

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