Geoscience Reference
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the geography of risk within the union. I argue that the patterns of economic
specialization (Krugman
1991
) determine the geography of labor market risk
in the union, thereby introducing a new set of motives behind the selection
of public insurance systems and fiscal structures (Mares
2003
; Moene and
Wallerstein
2001
;Varian
1980
).
Regionally specialized economies may be harmed by nationally uniform
public insurance systems. Centralization in the presence of highly specialized
regional economies creates what Alesina and Perotti (
1998
) called “political
risks,” that is, the risk of a functional mismatch between the needs of the local
economy and the design of public insurance.
This logic helps explain why sometimes poor regions opt for less fiscal
integration. They face a trade-off between the interregional income transfers
inherent to centralization and their capacity to maintain their preferred policy
choice in order to cope with their own specific labor market risks. Indeed,
sufficiently high levels of specialization may shape the preferences of relevant
actors even up to the point of overcoming the procentralization incentives of
lower income regions. As a result, elites in a specialized poor region may choose
to stay autonomous to protect the region's capacity to design fiscal policy as
they see fit (Beramendi
2007
). A prominent example of this counterintuitive
behavior is provided by the southern American states during the debates over
the institutional design of the Social Security Act (1935), analyzed in detail in
Chapter 5
.
More generally, the topic shows that as the geographies of income and risk
grow apart, so do preferences for the design of insurance systems, thereby
nurturing the political demand for more fragmented fiscal structures. This
diversity of preferences about the design of interpersonal redistribution, in
turn, exacerbates the distributive conflict over resources between regions. How
these conflicts resolve depends to a large extent on two factors: the organization
of political representation and the level of labor mobility across regions.
Political representation conditions the way in which contending prefer-
ences translate into the actual organization of fiscal structures
.
Representation matters because it determines the balance of power between the
regional and national elites, thus meditating distributive disagreements among
them.
17
To illuminate this process, I introduce a distinction between systems
of representation that understand conflicts over the nature of fiscal structures
as an affair between units and systems of representation that see redistribution
as a conflict among individuals across regions. I refer to the former as centrifu-
gal representation and to the latter as centripetal representation. In empirical
terms, a centrifugal system of representation is the joint outcome of highly
malapportioned legislative chambers, relatively weak national elections, and,
as a consequence, highly fragmented party organizations with a weak national
leadership. In turn, lower malapportionment and relatively stronger national
17
Cox (
1990
,
1997
); Iversen and Soskice (
2006
); Rodden (
2008
).
