DP1142 | Federal Fiscal Constitutions. Part II: Risk Sharing and Redistribution

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The paper studies the political and economic determinants of inter-regional public transfers. It points to an important difference between two alternative federal fiscal constitutions. The paper shows that inter-regional transfers can be determined either by a federation-wide vote over a centralized social insurance system, or by bargaining over intergovernmental transfers. When regions are asymmetric, the federal social insurance system leads to a larger fiscal programme.