Institutional Rules for Federations

Alberto Alesina, Ignazio Angeloni () and Federico Etro ()

No 8646, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the organization of federations - or international unions - which decide together the provision of certain public goods. The benefit of centralization depends on the internalization of the spillovers, that of decentralization on the adaptability to local differences. We individuate as an optimal institutional design a form of fiscal federalism based on decentralization of expenditures and a system of subsidies and transfers between countries. Since this solution can be politically unfeasible, we study institutional compromises between a centralized federation and a decentralized one. 'Flexible unions' and federal mandates in which both the state and federal levels are involved in providing public goods are typically superior to complete centralization and politically feasible. Finally, we study the effects of a qualified majority voting rule in a centralized system: we find that it can be a useful device to correct a bias toward 'excessive' union level activism.

JEL-codes: H61 H73 (search for similar items in EconPapers)
Date: 2001-12
New Economics Papers: this item is included in nep-pbe and nep-pub
Note: EFG ME PE
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Citations: View citations in EconPapers (22)

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Working Paper: Institutional Rules for Federations (2001)
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