Federalism, Regional Redistribution, and Country strongStabilitystrong.pdf

Federalism, Regional Redistribution, and Country Stability* by Enrico Spolaore Department of Economics Tufts University *prepared for the 5th Symposium on Fiscal Federalism “Regional fiscal flows, balance-sheet federalism, and the stability of federations,” IEB-IEA, Barcelona, June 19-20, 2008, and forthcoming in a volume of the Wallace Oates series Studies in Fiscal Federalism and State-Local Finance, Edward Elgar Publishing. I am grateful to Massimo Bordignon, Albert Solé-Ollé, and other symposium participants for valuable comments and suggestions. The usual disclaimer applies. Federalism, regional redistribution, and country stability by Enrico Spolaore (Tufts University, NBER and CESIfo) 1 Introduction In recent decades a large number of new sovereign states has been created through secessions, decolonization and breakup of existing countries. Since 1990 the Soviet Union split into fifteen independent countries, Yugoslavia gave way to six sovereign states (not counting Kosovo), Czechoslovakia broke into two separate states, Eritrea seceded from Ethiopia, Namibia gained independence from South Africa, and Timor Leste left Indonesia. Today there are 193 interna- tionally recognized sovereign states in the world, up from 74 in 1945 (the latest UN member is Montenegro, which joined in 2006). At the same time numer- ous countries, while remaining unified, have taken steps towards more regional autonomy and decentralization.1 Regional redistribution, decentralization and federalism have played a prominent role in political debates across Europe (e.g., in Belgium, Italy, Spain, the United Kingdom) and all over the world - from Canada to Colombia, from Nigeria to South Africa, from Iraq to India. These trends have motivated a growing litera