Economic Constitution of Federal States

Abstract

This book provides a new way of looking at the old problem of the assignment of powers in federal structures. A federal state is, by definition, one in which there exists two or more jurisdictional levels between which authority over domains of public policies has to be assigned. In Canada, for example, the provinces have been given exclusive jurisdiction over education; currency and international trade are assigned to the federal government; and both levels have concurrent authority in agriculture. Furthermore, in Canada, as in all federal states, the assignment of powers changes over time in an almost continuous way.The theory developed in this book suggests that the total amount of resources -defined in the broadest possible way -used up in running the public sector varies with the way powers are assigned to different jurisdictional levels; or, to put it differently, varies with the degree of centralization in the public sector. The absorption of resources for the purpose of running the public sector -to be distinguished from resources absorbed in the supply of the public policies themselves -takes four forms; resources used up by citizens to signal their preferences to governments, or to move from one jurisdiction to another; and those used up by governments to administer themselves, and to co-ordinate their activities.Two basic models are examined. In one, the assignment of powers which uses up the smallest amount of resources is analysed. In the other the assignment which is produced by politicians and bureaucrats operating within the framework of representative governments is studied. The two models are applied to the particular problems posed by redistribution and stabilization powers. A new We dedicate this book to the memory of fernand cadieux and tO HENRY ANGUS remembering their friendship and intellectual influence A considerable amount of our research time over the last four years has been devoted to the preparation of this book. The successive drafts -four in all -as well as papers and seminars based on them, which we have delivered during these years, attest to the unmistakable fact that there is but limited resemblance be tween what we are now presenting to the public and what we started out doing.The evolution of our ideas was governed partly by the dynamics of our ap proach to federalism, which was itself conditioned by our desire to produce a uni fied framework to analyse the layered structure of government, but it was also determined in no small measure by the discussions and the written or verbal com ments and criticisms which we have received, together or separately, from num erous friends and colleagues.We cannot hope to name them all. However, beyond a blanket 'thank you' to all who have helped us, we would like to thank in a special way all those who, at one time or another, have provided us with detailed comments, generally in writ ten form, which have had a profound influence on our work. They include Thomas Borcherding,

Accountability and decentralisation in government: An incomplete contracts model

“…This is to ensure that neither form of government has an intrinsic advantage over the other arising from a differing marginal disutility of effort. However, it also rules out economies of scale in government management, which are an additional reason often cited for centralisation (see Breton and Scott (1978) for example).…”

Séparation, annexion, et fédéralisme : au-delà des préceptes normatifs usuels

“…La dé-termination d'un fédéralisme « optimal » consisterait alors à maximiser simultanément les avantages respectifs de l'union et de la séparation ou encore, si on utilise le langage de A. Breton et A. Scott (1978), il s'agirait de minimiser les coûts respectifs de la séparation et de l'union dans le but d'obtenir le meilleur de deux mondes. L'analyse normative du fédéra-lisme inclut donc simultanément les arguments normatifs pour et contre la séparation ou l'annexion.…”

“…Par exemple, P. Fortin, G. Paquet et Y. Rabeau (1978) notèrent que le transfert de certaines politiques fiscales du gouvernement central aux gouvernements locaux pourrait permettre un taux de chômage moins élevé et une croissance accrue au niveau local car les politiques macroéconomiques, une fois centralisées, sont difficilement adaptables aux circonstances particulières des régions. Simultanément, suivant Breton et Scott (1978), on pourrait croire qu'avec la décentralisa-tion, l'autonomie dans l'usage des politiques macroéconomiques serait moindre puisque la part du commerce extérieur dans l'économie locale serait vraisemblablement plus grande. En somme, l'ordinateur devra choisir le type d'organisation qui minimise les coûts dans l'usage des politiques macroéconomiques.…”

“…Cette approche fut développée par A. Breton et A. Scott (1978 et ne sera pas étudiée ici. D'autre part, on peut s'interroger sur la validité empirique des hypothèses sous-jacentes à l'analyse normative usuelle et chercher à prédire comment cette analyse est modifiée lorsqu'on tient compte d'hy-16.…”

Tax Autonomy and Distributive Policies of the Italian Municipalities: The Case of the Region Emilia Romagna

“…The effects from the redistributive point of view have been considered in terms of citizens movements toward other jurisdictions to take advantage of the public goods provided there (for example Dixit et al (1998)). Other contributions analyze decentralization from the point of view of transaction costs, for example Breton and Scott (1978) and Inman and Rubinfeld (1993) or of the optimal division of powers, for example, Bednar et al (1996). On the financing side, decentralization has been considered, from an empirical point of view, for its effects on the economic growth (see note 10) and, from a theoretical point of view, for the effects of mobility in terms of fiscal competition.…”