The Political Economy of Inter-Regional Fiscal Flows Measurement, Determinants and Effects on Country Stability
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
Comment VI Carles Boix ‘Federalism and inter-regional redistribution’ stands out as an important, original contribution to the political economy of federalism. In that chapter Jonathan Rodden makes two important contributions – one empirical, the other theoretical – to the study of the political economy of federalism. In the first place, he offers comparable data on the extent of inter-regional fiscal flows in nine federations by looking at the size of intergovernmental grants and their impact over the per capita income of regional units. The European Union, India and the United States engage in little inter-territorial redistribution. Argentina and Brazil have some redistribution – but hardly of a progressive nature. Finally, Australia, Germany, Spain and Canada show a notable level of redistribution. In the second place, he sketches a new theory of the political and economic mechanisms that explain variation in inter-regional redistribution across federations. As Rodden rightly notes, current explanations are inadequate. Pure economic theories of fiscal federalism cannot explain most of the cross-national variance in fiscal flows. Culture-based explanations (emphasizing differences in national commitments to solidarity) do not match the historical dynamics of the cases. Finally, straightforward redistributive stories à la Meltzer–Richards predict the opposite of what the chapter finds out: unequal federations actually redistribute less than equal ones. Jonathan Rodden’s political-economic theory of federal bargains unfolds as follows. In all federations there is a potential coalition of low-income units interested in imposing redistributive policies. However, that potential redistributive coalition only forms and achieves its goals under a particular institutional configuration: a...
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