Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/18955
Authors: 
Huber, Bernd
Runkel, Marco
Year of Publication: 
2005
Series/Report no.: 
CESifo working papers 1491
Abstract: 
Empirical evidence from the U.S. and the European Union suggests that regions which contribute to interregional redistribution face weaker borrowing constraints than regions which benefit from interregional redistribution. This paper presents an argument in favor of such differentiated budgetary institutions. It develops a two-period model of a federation consisting of two types of regions. The federal government redistributes from one type of regions (contributors) to the other type (recipients). It is shown that a fiscal constitution with lax budget rules for contributors and strict budget rules for recipients solves the self-selection problem the federal government faces in the presence of asymmetric information regarding exogenous characteristics of the regions.
Subjects: 
asymmetric information
interregional redistribution
borrowing rules
JEL: 
D82
H77
H74
Document Type: 
Working Paper

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