Does fiscal federalism prevent or provoke secessionist conflicts? The Autonomy-Equalization Conundrum and the promise of concessionary federalism
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Date
2024
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Abstract
Does Fiscal Federalism Prevent or Provoke Secessionist Conflicts?
This article shows that both insufficient fiscal equalisation and
excessive redistribution can provoke contestations – especially
when economic grievances of low- and high-income states coincide
with national minorities. Fiscal federalism must strike a balance –
empowering low-income states without expropriating high-income
states – to prevent these contestations from escalating into con
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licts. The challenge is twofold: First, designing a policy framework
that discourages the perverse incentives associated with high levels
of equalisation and autonomy. This may be recommended by
Independent Fiscal Institutions (IFIs). However, this is not sufficient,
because political incumbents – influenced by their incentives and
self-interest – might resist these recommendations. Therefore,
the second level challenge lies in making these recommendations
work. One way is to establish institutionalised mechanisms of inter
governmental negotiations which can reveal interdependencies
and facilitate (a) continuous dialogue – enabling parties to align
their incentives with economists’ recommendations and recognise
their common interests where they had previously perceived con
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licting ones, and (b) reciprocal concessions – encouraging parties
to relax their dominant strategies. Intergovernmental councils with
predefined principles for contestations and mandatory outputs
(agreed-upon concessions) can yield an equilibrium where no
party has a unilateral incentive to deviate, encapsulating the
essence of negotiated cooperation and concessionary federalism.