Interregional Redistribution and Budget Institutions under Asymmetric Information

Bernd Huber and Marco Runkel ()

No 1491, CESifo Working Paper Series from CESifo

Abstract: Empirical evidence from the U.S. and the European Union suggests that regions which contribute to interregional redistribution face weaker borrowing constraints than regions which benefit from interregional redistribution. This paper presents an argument in favor of such differentiated budgetary institutions. It develops a two-period model of a federation consisting of two types of regions. The federal government redistributes from one type of regions (contributors) to the other type (recipients). It is shown that a fiscal constitution with lax budget rules for contributors and strict budget rules for recipients solves the self-selection problem the federal government faces in the presence of asymmetric information regarding exogenous characteristics of the regions.

Keywords: asymmetric information; interregional redistribution; borrowing rules (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-geo and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Interregional redistribution and budget institutions under asymmetric information (2008)
Working Paper: Interregional redistribution and budget institutions under asymmetric information (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_1491

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