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Explaining the distribution of fiscal transfers between Belgian regions: The effect of political representation

Explaining the distribution of fiscal transfers between Belgian regions: The effect of political representation

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Published by Eric Prenen

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Published by: Eric Prenen on Nov 24, 2011
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11/24/2011

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Naamsestraat 61 - bus 3550B-3000 Leuven - BELGIUMTel : 32-16-326661vives@econ.kuleuven.be
Geert JennesPhone: +32 16 373531Damiaan PersynPhone: +32 16 324230 
Copyright © 2011 by K.U.LEUVEN, VIVES. Discussion papers are in draft form. This discussionpaper is distributed for purposes of comment and discussion only. It may not be reproducedwithout permission of the copyright holder.
 
Explaining the distribution of fiscaltransfers between Belgian regions:The effect of political representation
25D
ISCUSSION
P
APER
 
VIVES 2011
 
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Explaining the distribution of fiscal transfers between Belgian regions: the effectof political representation
1
 Executive summary
This paper investigates the role of political representation in explaining regionalvariation in fiscal transfers in Belgium. Using Eurostat data for the years 1995 to 2008,we find that on average per capita cash fiscal transfers –consisting of the net amount of federal income taxes and social security contributions paid and social security benefitsreceived- to a Belgian province increase by between 12 and 36 euro per capita and per year for every minister originating from that province. This represents about 10 to 30percent of the variation in per capita transfers to a province over time. This result isrobust to controlling for economic and demographic variables that are importantdeterminants of transfers, i.e. (gross) income per capita, the unemployment rate, andthe proportion of the population above the retirement age.To our knowledge we are the first to demonstrate statistically that in Belgium politicalfactors do matter with respect to fiscal transfers. Our finding seems also quite uniquefrom an international perspective: we do not know of any other explanation of fiscaltransfers in particular or formula based expenditures in general (as opposed todiscretionary expenditures) by (1) regional origin of cabinet ministers in particular, or byany other variable pertaining to the executive in general. Moreover we do not know of any such finding in the context of (2) a proportional voting system, which appears tooffer less of an incentive to politicians to try and favour their electoral district than amajority voting system.Another finding of our paper is that for a Belgian region, while delivering a cabinetminister appears to “buy” transfers, delivering parliamentary seats supporting thegovernment majority does not. From a democratic point of view, this could be regretted.Being rewarded by fiscal transfers for delivering parliamentary seats could beconsidered as belonging more to the “normal democratic game” than being rewarded for being lucky enough to be the place of provenance of a cabinet minister. The legislativecould be argued to have more legitimacy than the executive.A side-finding of the paper is that to be the province of origin of a cabinet minister appears to be more rewarding for a French speaking province than for a Flemishprovince.Finally, we wish to make the observation that potentially the most considerable impactof politics on (the regional distribution of) fiscal transfers could evidently be expected tohappen indirectly: politicians may have a non-negligible influence on the economiccontrol variables (unemployment, income per capita) of our analysis that are significant

!"#""$
 
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in explaining fiscal transfers. In this sense the current analysis is limited in that it onlyestimates the direct effect of political variables on the regional distribution of fiscaltransfers in Belgium while keeping socio-economic factors such as unemploymentconstant.

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