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rich among the poor would prefer centralization. If the political process is such
that poor people are mobilized to threaten regional elites under conditions of
very high inequality, then it is possible that the fiscal burden for the rich within
the poor region is potentially higher. In this case the cost of resisting vertical
redistribution would outweigh the benefits.
5
The new ranking would then be
C
D.
Finally, poor people within the rich region also face a dilemma, although
of a different nature. They need to balance the amount of additional resources
they would be able to extract from the rich by coalescing with the poor in the
low-income region against the loss they would incur because of a change in
their relative position within the new, union-wide, income distribution. Such
loss would take the form of an implicit transfer of resources from the poor in
the rich region to the poor in the poorer areas of the union.
In determining the size of this loss the key factor is, again, the skew of
the regional income distributions. If the rich region is relatively equal, an
increase in the centralization of interpersonal redistribution would imply that
a large proportion of the poor in the rich region shift from net recipients to net
contributors. As a result, given a relatively equal regional income distribution,
the ranking of preferences among the poor in the rich region changes.
Because the poor in the rich region will want to protect their relative posi-
tion, fiscal decentralization (D) would be preferred to any system implying
any kind of transfer out of the region. Should a fully decentralized system of
redistribution not be an option, their second choice would be to continue their
alliance with the rich in support of fiscal structures that place more weight
on interregional than on interpersonal redistribution (H). In the presence of a
more egalitarian distribution of income within the region, the ranking would
then be D
>
H
>
C. In contrast, if the rich region were very unequal, then
a large share of the poor would remain net beneficiaries under a centralized
redistributive system. More formally, insofar as the income of the median poor
is equal or less than the income of the median voter of the union, a majority
among the poor would support full fiscal centralization (C). Their preference
ranking would be C
>
H
>
H.
In conclusion, a central insight emerges from this analysis of the preferences
of the different groups in
Table 2.1
. Preferences for fiscal structures depend
critically on the geography of income inequality. As the incidence of inequal-
ity between and within regions becomes more diverse, so do the preferences
for fiscal structures, thereby rendering the emergence of a centralized system
of interpersonal redistribution less feasible in political terms. As captured by
expressions (4) and (5), a larger diversity of preferences feeds into increasing
electoral costs for both national and regional elites should they deviate from
the preferences of the pivotal group within their constituency.
>
D
>
5
If however, the poor are disenfranchised, then rich citizens in poor regions are still better off
under a decentralized system of redistribution.
