This paper revisits the soft budget constraint problem arising in decentralised countries. Capturing the specific dynamics of political decision making in a federation, new light is shed on the incentives at work when lower-level (state) governments overborrow and are bailed out by the federal...

Looking at the Belgian federation, where 10% of the working population commutes across the borders of three small regions, a case can be made for studying commuting flows in a federal constellation. In this paper, commuting is introduced to a federal setting where an ad valorem residence based...

This paper revisits the soft budget constraint problem arising in decentralised countries. Capturing the specific dynamics of political decision making in a federation, new light is shed on the incentives at work when lower-level (state) governments overborrow and are bailed out by the federal...

In this paper, commuting is introduced to a federal economy where benevolent lower-level (state) governments levy an ad valorem tax on labour income. This results in inefficiently low levels of taxation, even when households as a whole do not migrate. Indeed, rather than attracting more workers...

We show that regional heterogeneity of underlying fundamentals (e.g. economic history, geography, social capital) can lead to extreme voting in federations. When the outcome of federal policies – such as transfer schemes, market regulation or migration laws – depends on these fundamentals,...