Federal Fiscal Constitutions: Risk Sharing and Redistribution
JOURNAL OF POLITICAL ECONOMY, Vol. 104, No. 5, October 1996
Posted: 21 Apr 1998
Abstract
The paper studies the political and economic determinants of regional public transfers. Specifically, it focuses on how such transfers are shaped by alternative fiscalconstitutions, where a constitution is an allocation of fiscal instruments across different levels of governments plus a procedure for the collective choice of these instruments. Realistic restrictions on fiscal instruments introduce a trade-off between risk sharing and redistribution. Different constitutions produce very different results. In particular, a federal social insurance scheme, chosen by voting, provides overinsurance, whereas an intergovernmental transfer scheme, chosen by bargaining, provides underinsurance.
JEL Classification: H71, H73, H77
Suggested Citation: Suggested Citation