Small States, Large Unitary States and Federations

Matthias Wrede

No 729, CESifo Working Paper Series from CESifo

Abstract: Employing a political-economics approach, this paper compares small states and unions when the former fail to internalize cross-border externalities of publicly provided goods. It discusses two types of unions: federations with more than one level of government and unitary states. While unitary states are unable to differentiate public spending ac-cording to differing preferences, rents of governments in a federation are higher due to a common-pool problem. The comparison leads to the following results. (1) Citizens prefer small states to large states if spillover effects are weak. (2) They benefit from a multi-level government only if their preferences heavily differ from the median-voter’s preferences and if spillovers are strong. Based on this comparison the paper also dis-cusses the creation of unions. Making specific assumption on the distribution of prefer-ences, it analyzes strong Nash equilibria and coalition-proof equilibria at the union formation stage.

Keywords: voting theory; electoral accountability; federations; strong Nash equilibria; coalition-proof equilibria. (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (3)

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Journal Article: Small States, Large Unitary States and Federations (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_729

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