Keywords: Inter-Regional Transfers,
Migration, Fiscal Federalism,
Redistribution
JEL-Classification: H71, H73
The
paper studies the
effects and the determinants of interregional redistribution in a model
of residential and political choice. We consider a federation of
jurisdictions among which agents are mobile. Each jurisdiction controls
a local policy that is democratically chosen by its residents and
redistributive in nature. Paradoxical consequences of
inter-jurisdictional transfers arise. If regions are self sufficient,
they necessarily converge with respect to policies and average incomes.
Horizontal transfers between jurisdictions, in contrast, lead to the
divergence of regional policies and per capita incomes. Because
interregional transfer schemes prevent interregional
equality,
however, they also allow for more interpersonal
equality among
the inhabitants of each region. For this reason, the voting population
may in a decision over the fiscal constitution deliberately implement
such a transfer
scheme to foster regional
divergence.
Copyright 2004 © A. Kessler