Federal Fiscal Constitutions: Risk Sharing and Redistribution

JOURNAL OF POLITICAL ECONOMY, Vol. 104, No. 5, October 1996

Posted: 21 Apr 1998

See all articles by Torsten Persson

Torsten Persson

Stockholm University - Institute for International Economic Studies (IIES); London School of Economics & Political Science (LSE); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Guido Tabellini

Bocconi University - Department of Economics; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research; Center for Economic Studies and Ifo Institute for Economic Research (CESifo)

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

Persson, Torsten and Tabellini, Guido, Federal Fiscal Constitutions: Risk Sharing and Redistribution. JOURNAL OF POLITICAL ECONOMY, Vol. 104, No. 5, October 1996, Available at SSRN: https://ssrn.com/abstract=4157

Torsten Persson (Contact Author)

Stockholm University - Institute for International Economic Studies (IIES) ( email )

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London School of Economics & Political Science (LSE)

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National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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Guido Tabellini

Bocconi University - Department of Economics ( email )

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Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

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