Economic Risk and Political Risk in Fiscal Unions

Alberto Alesina and Roberto Perotti

Scholarly Articles from Harvard University Department of Economics

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

Date: 1994
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Published in Economic Journal

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Related works:
Journal Article: Economic Risk and Political Risk in Fiscal Unions (1998)
Working Paper: Economic Risk and Political Risk in Fiscal Unions (1995)
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Persistent link: https://EconPapers.repec.org/RePEc:hrv:faseco:4553022

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