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will also seek the welfare offered in other localities (Peterson
1995
; Peterson
and Rom
1990
).
The geographical mobility of the unemployed and their dependents has
several effects. It reduces the distance across regions in terms of the tax base
11
and the size of the dependent population.
12
The region expelling unemployed
poor people increases its employment rate and average output, whereas the
recipient region sees both magnitudes drop. As a result, both regions also come
closer in terms of the nature of the distributive conflict among their citizens.
As the poor travel across regional boundaries, net welfare recipients in
wealthier regions lose their ability to protect their tax base by keeping a decen-
tralized insurance system and reducing interregional redistribution. Therefore,
their incentives to support a more centralized fiscal structure (C) increase. Inter-
regional mobility of dependents from economically depressed to economically
prosperous areas implies by definition an interregional transfer of resources
between the regions of the union. As a result, as the policy preferences of dif-
ferent groups grow closer, the political pursuit of a fiscally centralized system
becomes more feasible.
13
An important requirement for mobility to map onto
a centralized fiscal structure (C) is that levels of economic specialization should
be similar across different regions of the union. Only then will the different
groups involved find common ground regarding interpersonal redistribution (t)
in a context in which mobility has created high levels of interregional redistri-
bution (T).
In contrast, the distribution of preferences is more heterogeneous when high
levels of mobility among dependents combines with differential patterns of
regional economic specialization. While citizens from a poor, non-specialized
region would have a lot to gain from a fully centralized system, citizens in
a wealthy, economically specialized region face a complex set of motives that
work in opposite directions. They need some form of common pool of resources
against the prospect of an external negative shock. Yet they also want to
preserve policy autonomy to design interpersonal redistribution in ways that
disrupt their regional economy least.
Due to high levels of regional economic specialization, the possibility of
a large contingent of dependent immigrants affects not only the regional tax
base, but also the existing fit between decentralized redistributive efforts and the
organization of local labor markets. As a result, I argue, those who have more
to fear from a centralized system of interpersonal redistribution (spurred by
large levels of dependents' mobility) have incentives to act strategically. That is
to say the elites of the wealthier region, in anticipation of undesired population
inflows, have strong incentives to help fund decentralized redistribution in other
regions through larger interregional transfers (T).
11
In the preference formation model this is formally captured by w
r
.
12
(
−
α)
In the preference formation model this is formally captured by
1
.
13
For other analyses where increasing labor mobility facilitates the adoption of common social
policies, see Bolton and Roland (
1996
); and Perotti (
2001
).
