Interregional redistribution and budget institutions under asymmetric information

Bernd Huber and Marco Runkel ()

Munich Reprints in Economics from University of Munich, Department of Economics

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 budget 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.

Date: 2008
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Citations: View citations in EconPapers (11)

Published in Journal of Public Economics 12 92(2008): pp. 2350-2361

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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 (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:lmu:muenar:19390

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