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<p>This paper proposes a multi-region fiscal bargaining model where country border stability depends on preference heterogeneity, income inequality and scale economies in public policy. It demonstrates how increasing preference heterogeneity can <i>increase</i> border stability by increasing political disagreements over government expenditures, reducing the willingness to pay taxes and better aligning them with the fiscal preferences of the discontented and the wealthy. Hence, stable and efficient country borders may require a minimal degree of preference heterogeneity or, lacking that, stabilization through a credible tax ceiling, compensating transfers or fiscal decentralization.</p>

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Divided we stand: a fiscal bargaining model for heterogeneous countries

  • 期刊论文

  • 发表日期：

    2025年5月30日

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  • Jakob Vanschoonbeek

摘要

This paper proposes a multi-region fiscal bargaining model where country border stability depends on preference heterogeneity, income inequality and scale economies in public policy. It demonstrates how increasing preference heterogeneity can increase border stability by increasing political disagreements over government expenditures, reducing the willingness to pay taxes and better aligning them with the fiscal preferences of the discontented and the wealthy. Hence, stable and efficient country borders may require a minimal degree of preference heterogeneity or, lacking that, stabilization through a credible tax ceiling, compensating transfers or fiscal decentralization.