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.

Comment III

François Vaillancourt

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


François Vaillancourt* These comments are organized along the lines of the issues raised in our chapter in this volume. We first use a set of three comparative tables to present the key methodological choices of the three chapters and we discuss them in turn. We then turn to more general issues: THE METHODOLOGICAL CHOICES We address six methodological choices regrouped in three tables: Table C3.1 covers general methodology, and temporal geographic coverage, Table C3.2 expenditures allocation and revenues allocation, and Table C3.3 treatment of debt and interest and treatment of current surplus or deficit. General Methodology, Temporal and Geographic Coverage There are three possible methodological choices: the cash flow approach, the fiscal incidence approach and the economics gains approach. In Vaillancourt (this volume) we argue that the proper approach is the fiscal incidence approach. Why? Because the purpose of these exercises is to examine if residents in a region are receiving a reasonable amount of publicly provided goods and services given what they pay in the central budget. The economic gain approach implicitly assumes that there are no national public goods. Hence the value of the services of the national parliament accrues only to the region where it is located (the capital). This is incorrect. Only the Canadian study excludes parts of the country. This makes sense in that these territories are very different from the provinces and heavily dependent on federal expenditures. But it is preferable to include the whole country, including special regions as in the case...

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