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Tactical Transfers with Federal Institutions

The paper analyzes tactical transfers in a federal setting, investigating the drivers of tactical redistribution when various levels of government coexist. As in Dixit & Londregan (1996), parties set down a tactical transfers schedule in order to maximize the share of votes obtained in the electoral races, both at a local and at a central level; citizens care both about ideology and about the transfers promises of each party. Four institutional settings will be considered, entailing different rules and a different degree of decentralization concerning the policy and transfer determination process: fully localized and fully centralized governments, federal government with transfers among regions and federal government with transfers among social groups. An equivalence result is obtained: for what concerns the distributional effects, the equilibria obtained in a context of centralized government and in a context of federal governments with transfers (among regions or among social groups) are equivalent. Moreover, it turns out that citizens living in high income regions tend to prefer, ceteris paribus, localization over centralization while the opposite is true for citizens living in swing regions.