Small States, Large Unitary States and Federations

Arbeitspapier

Employing a political-economics approach, this paper compares small states and unions when the former fail to internalize cross-border externalities of publicly provided goods. It discusses two types of unions: federations with more than one level of government and unitary states. While unitary states are unable to differentiate public spending ac-cording to differing preferences, rents of governments in a federation are higher due to a common-pool problem. The comparison leads to the following results. (1) Citizens prefer small states to large states if spillover effects are weak. (2) They benefit from a multi-level government only if their preferences heavily differ from the median-voter's preferences and if spillovers are strong. Based on this comparison the paper also dis-cusses the creation of unions. Making specific assumption on the distribution of prefer-ences, it analyzes strong Nash equilibria and coalition-proof equilibria at the union formation stage.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 729

Classification and Topics

• Classification: Wirtschaft
• Subject: voting theory ; electoral accountability ; federations ; strong Nash equilibria ; coalition-proof equilibria.

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Wrede, Matthias
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2002

Further information

• Handle: http://hdl.handle.net/10419/75994
• Last update: 10.03.2025, 11:44 AM CET