Geoscience Reference
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More broadly, why does European inequality map neatly onto anemic social
effort at the EU level, while geographic distribution of inequality seems weakly
linked to fiscal dynamics in Spain and Germany?
OVERVIEW OF THE ARGUMENT
As a strategy to solve these puzzles, this topic analyzes the origins and evo-
lution of fiscal structures in political unions. Political unions organize their
fiscal systems according to one of three designs: a
centralized
design (C) in
which the national government controls income taxes and transfers as well as
the allocation of resources across regions; a
decentralized
design (D) in which
regions control income transfers and taxes and there is very little redistribution
between regions; and, finally, a hybrid design (H), in which a partially decen-
tralized system of interpersonal redistribution coexists with significant levels
of interregional redistribution. These are obviously ideal types in a continuum
in which actual unions fall in different positions. The situation in Spain in
the aftermath of its democratic transition exemplifies a political union with
a centralized fiscal structure (C). The European Union is a case of a very
decentralized fiscal structure (D). Finally, Germany's fiscal structure during the
post-war period offers an example of a hybrid regime (H).
In explaining variation among these designs, I build on the premise that elec-
toral concerns drive the choice of fiscal structures (O'Neill
2005
). An important
part of gaining and retaining office lies in acquiring a position to forge suc-
cessful electoral coalitions, an endeavor for which fiscal redistributive policies
constitute a powerful tool. Thus, political elites will support the specific fiscal
structure that best serves their electoral interest. This topic highlights two fac-
tors shaping politicians' choices between the three types: the combined effect
of economic geography and the organization of political representation on the
one hand, and the role of mobility as a source of cross-regional economic
externalities on the other. These factors, I argue, are the mechanisms driving
the political geography of inequality. I outline the argument in four steps.
Decentralizing fiscal structures matters for inequality because it activates
the underlying economic geography of the union.
The distributive consequences of allowing subnational governments to control
taxes and transfers are a function of the preexisting levels of inequality bet-
ween and within regions. This being the case, it is reasonable to assume that
political actors are aware of the structure of inequality within the different
territories and their relative position within it, from which they derive an
expectation about the distributive implications associated with any alternative
institutional design. Put simply, actors deciding on the design of fiscal structures
are at the same time making a choice regarding income redistribution. By
implication, the prospect of any institutional change concerning the territorial
allocation of the powers to tax and transfer triggers a distributive conflict both
between and within units. This conflict unfolds along two dimensions: income
