Political Economy of Fiscal Unions

Arbeitspapier

I formulate a political-economy model of a fiscal union where the threat of secession imposes a limit on fiscal redistribution between regions. I argue that the trade-off between implementing the region's preferred fiscal policy and benefiting from inter-regional risk sharing depends on the nature of economic shocks. Specifically both correlation of shocks across regions and their persistence over time are important. The gains from inter-regional risk sharing are potentially large when shocks are negatively correlated and temporary. In contrast, unions with negatively correlated permanent shocks are likely to prove politically unviable.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 4344

Classification and Topics

• Classification: Wirtschaft ; Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior ; International Relations and International Political Economy: Other ; Intergovernmental Relations; Federalism; Secession
• Subject: fiscal federalism ; risk sharing ; disintegration ; median voter ; optimum currency areas

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Fidrmuc, Jan
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/79648
• Last update: 10.03.2025, 11:44 AM CET