Economic Risk and Political Risk in Fiscal Unions

Alberto Alesina and Roberto Perotti ()

Economic Journal, 1998, vol. 108, issue 449, 989-1008

Abstract: A fiscal program that redistributes income from rich to poor individuals indirectly redistributes tax revenues from regions hit by a favorable shock to regions hit by an unfavorable one. Centralized fiscal redistribution has therefore been advocated as a way to insure individuals against region-specific shocks. In this paper, the authors argue that a centralized fiscal policy, while reducing the uncertainty on the tax base, may create additional uncertainty on the tax rate. Using a simple model they show that the higher uncertainty on the policy instrument might more than offset the lower uncertainty on the tax base.

Date: 1998
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Working Paper: Economic Risk and Political Risk in Fiscal Unions (1995)
Working Paper: Economic Risk and Political Risk in Fiscal Unions (1994)
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