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Interregional transfers, group loyalty and the decentralization of redistribution

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  • Sabine Flamand

    (Universitat Autònoma de Barcelona)

Abstract

We study the decentralization of redistributive taxation in a political economy model assuming regional heterogeneity regarding both group identity and average income. If a centralized system permits a beneficial pooling of national resources, it might also decrease the degree of solidarity in the society. With no group loyalty, centralization Pareto-dominates decentralization even when regions are not identical. Furthermore, increased heterogeneity need not increase the relative efficiency of decentralization. If regions are equally rich, centralization Pareto-dominates decentralization whenever group loyalty is not perfect. Finally, centralization is always more efficient than decentralization even when allowing for interregional transfers.

Suggested Citation

  • Sabine Flamand, 2010. "Interregional transfers, group loyalty and the decentralization of redistribution," Working Papers 2010/37, Institut d'Economia de Barcelona (IEB).
    • Handle: RePEc:ieb:wpaper:doc2010-37
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    Cited by:

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    3. Joan-Maria Esteban & Sabine Flamand & Massimo Morelli & Dominic Rohner, 2018. "The Survival and Demise of the State: A Dynamic Theory of Secession," Working Papers 1028, Barcelona School of Economics.

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    More about this item

    Keywords

    Redistribution; fiscal federalism; group loyalty;
    All these keywords.

    JEL classification:

    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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