Geoscience Reference
In-Depth Information
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A Theory of Fiscal Structures in Political Unions
Fiscal structures result from political choice. They are the outcome of a process
in which political elites and citizens interact. Politicians care about votes and
approach the process concerned about their electoral fate. Citizens care about
their welfare and evaluate alternative fiscal structures by the cost and benefits
they bring about. This chapter analyzes this process.
I begin by laying out the basic elements and the premises of my model.
Second, I analyze how economic geography shapes the preferences for fis-
cal structures. Third, I focus on how cross-regional economic externalities,
in particular mobility, mediate the distributive conflicts associated with eco-
nomic geography, and shape preferences for interregional redistribution. In a
later section I analyze the role of political representation as a mediating factor
between contending preferences and the choice of fiscal structures. Finally, the
last section summarizes the empirical implications of the argument.
THE ANALYTICAL FRAMEWORK: ELEMENTS AND PREMISES
The interaction between national and regional elites in political unions is com-
plex. If the analysis that follows attempted to capture everything political within
unions, the topic would deteriorate into complexity for the sake of complexity.
To prevent this, the model builds on a number of simplifying assumptions.
The first concerns the relationship between the two dimensions of fiscal
structures under study. In the political process, interpersonal and interregional
redistribution are deeply intertwined. For example, where a system of taxes
and transfers is centralized there are distributive consequences across regions,
driven by the dispersal of taxpayers and welfare recipients. Wealthier regions
within the union see themselves exploited by less prosperous regions - as seen
in ongoing disputes in Belgium, Italy, or Spain. In contrast, in a decentralized
system poor regions demand more resources to meet their obligations. These
examples demonstrate the interdependency of interpersonal and interregional
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