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Whichever approach they adopt, subnational governments need resources.
To the extent that they differ in the size of their tax bases, subnational govern-
ments are not equally equipped to face the challenge of sustaining employment
levels. Wealthier states will be more able to cope with economic uncertain-
ties and to secure new employment opportunities for their residents. Because
subnational governments need resources to develop their own policies, the
interregional transfers of resources between rich and poor areas is a central
aspect of the politics of redistribution in political unions. Some federations,
such as Germany, have instruments aimed at reducing the resource gap between
subnational governments, thereby enabling them to provide equally for their
residents. 3 Other federations, such as the United States, lack such instruments
and either preserve or exacerbate the disparities in fiscal capacity among the
union members. I consider differences in the reallocation of fiscal resources
between subnational governments differences in levels of interregional redistri-
bution.
The organization of fiscal structures determines how much redistribution,
both interpersonal and interregional, there is in political unions, ultimately
shaping the scope and profile of inequality. The distinctive feature of political
unions, as opposed to centralized democracies, lies in the trade-off between
the pursuit of equality and the protection of political autonomy. The funda-
mental dilemma at the heart of modern, democratic, political unions is how to
reconcile the two goals of equality and autonomy. In an era in which social
insurance and redistribution occupy the lion's share of governments' budgets,
the tension between equality and autonomy manifests itself in a conflict over
the design of fiscal structures. About one-third of the world's population lives
in democratic political unions today. Hence, a real understanding of inequality
requires a better grasp of the politics behind public insurance systems (inter-
personal redistribution) and interregional transfers in political unions.
These are timely and understudied issues. Renegotiation of the fiscal contract
is a prominent item on the political agenda in Spain, Italy, Belgium, and even
the United Kingdom (with the ongoing discussions about Scotland and Wales).
Beyond Europe, democracies as diverse as Bolivia, Russia, and India face similar
conflicts. The way unions solve them illustrates an important, and largely
overlooked, aspect of the political economy of inequality and redistribution.
To fill this gap this topic develops a new political geography of inequality.
I ask why some political unions show less redistribution and more inequality
than others. In seeking an answer to this question, I develop a new comparative
analysis of the politics of fiscal structures in political unions. I argue that the
observable variation in fiscal structures and outcomes across political unions
results from the combined effect of economic geography and political repre-
sentation. By economic geography I refer to cross-regional differences in terms
of income inequality and economic specialization. By political representation
3 Here I make no judgment about the efficiency effects associated with the way these resources
are actually spent.
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