Fiscal Equalization and Political Conflict
No 9/2012, NEPS Working Papers from Network of European Peace Scientists
In this paper we analyze the political viability of equalization rules in the context of a decentralized country. We explore the idea that when equalization rules are perceived as unfair, regions may initiate a political conflict. Regions are formed by identical individuals who, through lobbying, try to obtain a higher share from the (equalization) pool of resources. Political conflict is measured as the total contribution to lobbying. We conclude that the onset of conflict depends on the degree of publicness of the regional budget and the relative size of the regions. When regional budgets are used to provide pure public goods, full fiscal equalization is politically feasible. However, fiscal equalization is not immune to conflict when budgets are used to provide private goods or a linear combination of private and public goods. The likelihood of political conflict decreases as the regions become similar in size.
Keywords: political conflict; lobbying; fiscal equalization; social decision rules (search for similar items in EconPapers)
JEL-codes: D31 D74 H77 R51 (search for similar items in EconPapers)
Pages: 17 pages
New Economics Papers: this item is included in nep-cdm, nep-pbe and nep-pol
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Working Paper: Fiscal equalization and political conflict (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ris:nepswp:2012_009
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