Resource title

Federalism, Freedom of Movement, and Fiscal Equalization

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Resource description

In this paper, we take up the question why a group of sovereign countries is willing to form a federation even if residents of the high-income region suspect potential immigrants to be net beneficiaries of the tax and transfer system. We argue that income uncertainty alone cannot satisfactorily explain the formation of federations, since in many existing and developing federations income differences are both large and persistent. In the model presented here remaining separated involves costs for the high-income region, which can be regarded as a proxy for the efficiency loss caused if mobile factors cannot reallocate. A fiscal equalization scheme that shares the resources saved by limiting costly migration between the regions can make both regions better off.

Resource author

Stefan Traub

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Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/22066

Resource license

Adapt according to the presented license agreement and reference the original author.