Divided We Stad: a Fiscal Bargaining Model for Divided Countries

Jakob Vanschoonbeek

MPRA Paper from University Library of Munich, Germany

Abstract: I propose a multi-region fiscal bargaining model, where country border stability is determined by a trade-off between preference heterogeneity, income inequality and scale economies in the provision of public policy. I demonstrate how increasing preference heterogeneity can actually increase border stability in this framework; by increasing political disagreements over government expenditures, it functions as a tax-reducing mechanism that brings equilibrium tax rates more in line with the fiscal preferences of the discontented and the wealthy. I provide empirical evidence for the model's main predictions in a large panel of countries over the past half-century. I also show its capacity to match some of the main fiscal and political evolutions in Belgium since its inception. The model provides a rationale for the observed border stability in highly politically heterogeneous and economically unequal countries, such as Belgium, which is difficult to explain in existing models.

Keywords: Secession and unification; political economy; fiscal policy; fiscal federalism; decentralization; transfer schemes; quantitative models; Belgium (search for similar items in EconPapers)
JEL-codes: C70 D71 H41 H71 H77 (search for similar items in EconPapers)
Date: 2020-07-15
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/101863/1/MPRA_paper_101863.pdf original version (application/pdf)

Related works:
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:pra:mprapa:101863

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().