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Fiscal Equalization and Political Conflict

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  • Cubel, Maria

    (University of Barcelona)

Abstract

In this paper we analyze the political viability of equalization rules in the context of a decentralized country. We explore the idea that when equalization rules are perceived as unfair, regions may initiate a political conflict. Regions are formed by identical individuals who, through lobbying, try to obtain a higher share from the (equalization) pool of resources. Political conflict is measured as the total contribution to lobbying. We conclude that the onset of conflict depends on the degree of publicness of the regional budget and the relative size of the regions. When regional budgets are used to provide pure public goods, full fiscal equalization is politically feasible. However, fiscal equalization is not immune to conflict when budgets are used to provide private goods or a linear combination of private and public goods. The likelihood of political conflict decreases as the regions become similar in size.

Suggested Citation

  • Cubel, Maria, 2012. "Fiscal Equalization and Political Conflict," NEPS Working Papers 9/2012, Network of European Peace Scientists.
    • Handle: RePEc:ris:nepswp:2012_009
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    Cited by:

    1. Sakshi Gupta & Ram Singh, 2018. "On Existence and Properties of Pure-strategy Equilibria under Contests," Working papers 288, Centre for Development Economics, Delhi School of Economics.

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    More about this item

    Keywords

    political conflict; lobbying; fiscal equalization; social decision rules;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

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