Geoscience Reference
In-Depth Information
recognized the importance of fiscal structures in political unions.
1
This topic
defines fiscal structures as a combination of two factors: the level of central-
ization of income taxes and transfers; and the extent of redistribution between
regional governments.
Fiscal structures are crucial to economic welfare during periods of hardship.
Anyone driving around America today is likely to encounter constant reminders
of a failed economy. Empty buildings, formerly busy car dealerships that once
harbored a frenzy of transactions, now stand neglected. When the illusion of
endless credit vanished in 2007 many Americans faced unemployment. Yet
they did so on a very unequal basis. According to data from the U.S. Bureau of
Labor, a sales agent in Arkansas, facing dismissal in the last quarter of 2007,
would have expected a level of benefits equal to 30% of his wage for an average
of fourteen weeks. A similar worker in California would have been entitled to
about one-half of his previous salary for twenty weeks. In Pennsylvania, he
would have received 60% of his previous earnings for eighteen weeks.
Across America, workers doing similar jobs are treated differently. These
inequalities are partly due to the constraints Roosevelt faced in fulfilling his
nomination pledge. However, political unions elsewhere did not encounter the
same obstacles. Whereas Roosevelt could only pass legislation to incentivize
states to launch their own unemployment insurance systems, the government
of Canada adopted a national system in 1941. Similarly, workers in Germany
can expect the same amount of unemployment insurance benefits regardless
of where they live. I consider these differences in the territorial organization
of taxes and public insurance systems to be differences in the organization of
interpersonal redistribution.
2
Both national and subnational (state, local, or regional) governments face
increasing economic pressures during periods of rising unemployment. Natu-
rally it is in their interests to help ailing sectors in times of crisis where possible.
In the car industry, for example, major companies routinely lobby national and
regional governments in France, Germany, and Spain for help to keep struggling
plants operational. Likewise, states in the United States can subsidize produc-
tion via tax incentives, as many Southern states have done. This has facilitated
the entry of European and Japanese car makers into the American market, and
altered the geography of car production in the United States. Alternatively,
subnational governments may choose to facilitate a shift in their economic
structures and bid for new investments at the expense of declining sectors.
1
I define political unions broadly as entities where citizens are ruled by national and regional
governments within a common economic space. The concept includes confederations, such as
the European Union, all of the world's democratic federations, as well as countries undergoing
processes of political and fiscal decentralization, such as Spain.
2
The underlying assumption here is that most redistribution occurs through programs that are
meant to provide insurance over the life course (such as unemployment benefits and pensions)
and that the tools used to finance them (direct and indirect income taxes, insurance contributions)
are, in part and to varying degrees, progressive. To the extent that for large sectors of society
the benefits received exceed the amount justified by earlier contributions, insurance programs
are also redistributive programs (Atkinson
1995
; Moene and Wallerstein
2001
;Varian
1980
).
