Journal article

Small States, Large Unitary States and Federations

Publication Details
Author(s): Wrede M
Journal: Public Choice
Publisher: Springer Verlag (Germany)
Publication year: 2004
Volume: 119
Pages range: 219-240
ISSN: 0048-5829
Language: English


Employing a political-economics approach, this paper compares small states and unions when the former fail to internalize cross-border externalities of publicly provided goods. It discusses two types of unions: federations with more than one level of government and unitary states. While unitary states are unable to differentiate public spending according to differing preferences, rents of governments in a federation are higher due to a commonpool problem. The comparison leads to the following results. (1) Citizens prefer small states to large states if spillover effects are weak. (2) They benefit from a multi-level government only if their references heavily differ from the median-voter’s preferences and if spillovers are strong. Based on this comparison the paper also discusses the creation of unions. Making specific assumption on the distribution of preferences, it analyzes strong Nash equilibria at the union formation stage.

How to cite
APA: Wrede, M. (2004). Small States, Large Unitary States and Federations. Public Choice, 119, 219-240.

MLA: Wrede, Matthias. "Small States, Large Unitary States and Federations." Public Choice 119 (2004): 219-240.

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