Federal Fiscal Constitutions: Risk Sharing and Redistribution

Torsten Persson () and Guido Tabellini

Journal of Political Economy, 1996, vol. 104, issue 5, 979-1009

Abstract: This paper studies the political and economic determinants of regional public transfers. Specifically, it focuses on how such transfers are shaped by alternative fiscal constitutions, 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. Copyright 1996 by University of Chicago Press.

Date: 1996
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