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 13: Federalism, Regional Redistribution and Country Stability

Enrico Spolaore

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

Extract

Enrico Spolaore 1 INTRODUCTION In recent decades a large number of new sovereign states has been created through secessions, decolonization and breakup of existing countries. Since 1990, the Soviet Union has split into 15 independent countries, Yugoslavia gave way to six sovereign states (not counting Kosovo), Czechoslovakia broke into two separate states, Eritrea seceded from Ethiopia, Namibia gained independence from South Africa, and Timor Leste left Indonesia. Today there are 193 internationally recognized sovereign states in the world, up from 74 in 1945 (the latest UN member is Montenegro, which joined in 2006). At the same time, numerous countries, while remaining unified, have taken steps towards more regional autonomy and decentralization.1 Regional redistribution, decentralization and federalism have played a prominent role in political debates across Europe (for example, in Belgium, Italy, Spain, the United Kingdom) and all over the world – from Canada to Colombia, from Nigeria to South Africa, from Iraq to India. These trends have motivated a growing literature on the political economy of national borders, which has addressed questions such as: Why do countries break up? What are the costs and benefits of secessions and border redrawing? Are country breakups efficient from an economic perspective? Is the demand for sovereignty and independence connected to the demand for regional decentralization and autonomy within unified countries? Do decentralization and federalism reduce the periphery’s incentives to secede? In this chapter we will review some key concepts and results about the efficiency and stability of national borders from an economic perspective (section...

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