EconPapers    
Economics at your fingertips  
 

Efficient Fiscal Spending by Supranational Unions

Jenny Simon and Justin Valasek ()
Additional contact information
Justin Valasek: Social Science Research Center Berlin (WZB), Postal: Social Science Research Center Berlin (WZB), Market and Politics Research Unit, Reichpietschufer 50, D-10785 Berlin, Germany, http://mwpweb.eu/JustinValasek/

No 20, SITE Working Paper Series from Stockholm School of Economics, Stockholm Institute of Transition Economics

Abstract: We use a novel approach to address the question of whether a union of sovereign countries can efficiently raise and allocate a budget, even when members are purely self-interested and participation is voluntary. The main innovation of our model is to explore the link between budget contributions and allocation that arises when countries bargain over union outcomes. This link stems from the distribution of bargaining power being endogenously determined. Generically, it follows that unstructured bargaining gives an inefficient result. We find, however, that efficiency is achieved with fully homogenous countries, and when countries have similar incomes and the union budget is small. Moreover, some redistribution arises endogenously, even though nations are purely self-interested and not forced to participate in the union. A larger union budget, however, entails a trade-off between equality and efficiency. We also analyze alternative institutions and find that majority rule can improve efficiency if nations who prefer projects with high public good spillovers are endogenously selected to the majority coalition. Exogenous tax rules, such as the linear tax rule in the EU, which is designed to increase efficiency on the contribution margin, can also improve overall efficiency despite decreasing the efficiency of the allocation of funds.

Keywords: International Unions; Efficiency; Public Goods; Redistribution; Federalism; Legislative Bargaining (search for similar items in EconPapers)
JEL-codes: D71 H77 H87 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2012-12-10, Revised 2012-12-11
New Economics Papers: this item is included in nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://swopec.hhs.se/hasite/papers/hasite0020.pdf (application/pdf)

Related works:
Working Paper: Efficient Fiscal Spending by Supranational Unions (2013) Downloads
Working Paper: Efficient fiscal spending by supranational unions (2012) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hhs:hasite:0020

Access Statistics for this paper

More papers in SITE Working Paper Series from Stockholm School of Economics, Stockholm Institute of Transition Economics Stockholm Institute of Transition Economics, Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by Dominick Nilsson ().

 
Page updated 2021-11-24
Handle: RePEc:hhs:hasite:0020