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time. The evolution of the EU's fiscal structure and its distributive implications
provides a very good illustration of this process. As does the close link between
the centrifugal transformation of Spain's party system and the success of partial
reforms to limit the scope of redistribution.
Pressure to pursue or sustain decentralized systems of redistribution is lower
when cross-regional differences in economic geography are less acute. As shown
by the experiences of Social Security reform in Germany and Spain, in the
context of such pressures, the dynamic is very different under centripetal rep-
resentation. I have shown in detail how the latter works to facilitate or sustain
cross-regional coalitions along income lines, thereby muting the decentralizing
push of economic geography. In turn, the prospect of high levels of mobility
fosters interregional transfers, thereby reducing the regional resource gap. As
the prospect of mobility becomes less daunting, acceptance of interregional
redistribution weakens, and political conflicts over fiscal structures reemerge.
The evolution of political contentions in Germany after Reunification provides
direct evidence on this. Ultimately, centripetal representation and mobility are
the key mechanisms that explain why only some unions are capable of over-
coming the trade-off between equality and autonomy.
IMPLICATIONS: INEQUALITY AND STABILITY IN POLITICAL UNIONS
In what follows I address the implications of these findings for some rele-
vant normative contentions about federalism and decentralization. Politically,
as well as analytically, fiscal decentralization has been either celebrated or
dammed on very similar grounds. For welfare economists and public choice
theorists, for the neoclassical right and the jacobine left, subnational govern-
ments, in competition for either rents or investments, constrain redistribution
and foster efficiency.
3
What this study suggests is that these expectations, whether in fear or hope,
are justified only under specific conditions. For factors to be mobile and redis-
tribution to be constrained, the labor force should have a similar skills compo-
sition across regions, with significant differences in average incomes (Cai and
Treisman
2005
). Only under these conditions is a race to the bottom likely to
emerge.
If, alternatively, regions are relatively closer in their average income levels but
differ in the degree of specialization of their economic activities, no race to the
bottom is likely to emerge for neither capital nor labor are easily mobile. Under
these conditions, one could envision a rather different decentralized design,
namely one which is compatible with the development of different redistributive
strategies tailored towards highly specialized regional labor markets.
Potentially, this could improve the comparative advantage of the dif-
ferent regions and generate efficiency gains. Far from fostering inequality,
3
For sources on these literatures, see
Chapter 1
. A more detailed review of these literatures is
available in Beramendi (
2007
); Rodden (
2007
); and Wibbels (
2006b
).
