How Federalism Protects Future Generations from Today's Public Debts
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Reiner Eichenberger
Abstract
From the politico-economic perspective, federalism is a protector of the present generation. But what about future generations? In federal states, Ricardian equivalence cannot be assumed to work properly, as migration between local jurisdictions undermines intergenerational redistribution based on parental altruism. However, we argue that there exists another equivalence mechanism which also works with purely selfish individuals: Public debts capitalize into property values. Jurisdictions with larger net debts exhibit, ceteris paribus, lower property prices. Debt capitalization in property values is the more pronounced the less elastic land supply is and the more mobile the other factors of production are. Therefore, capitalization is more relevant for local than for national debts, i.e. it is more pronounced in a federal than in a centralized state. Thus, federalism also becomes a protector of future generations.
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
Articles in the same Issue
- Article
- Introduction: Ex Uno Plures. Welfare Without Illusion
- Polycentric Polity: Genuine vs. Spurious Federalism
- Fiscal Equity In Federal Systems
- Federalism, Budget Deficits and Public Debt: On the Reform of Germany's Fiscal Constitution
- How Federalism Protects Future Generations from Today's Public Debts
- Raising vs. Leveling in the Social Organization of Welfare
- The Influence of Public Institutions on the Shadow Economy: An Empirical Investigation for OECD Countries
- Fiscal Federalism at the Ballot Box: The Relevance of Expressive Voting
- Federalism as an Effective Antidote to Terrorism
Articles in the same Issue
- Article
- Introduction: Ex Uno Plures. Welfare Without Illusion
- Polycentric Polity: Genuine vs. Spurious Federalism
- Fiscal Equity In Federal Systems
- Federalism, Budget Deficits and Public Debt: On the Reform of Germany's Fiscal Constitution
- How Federalism Protects Future Generations from Today's Public Debts
- Raising vs. Leveling in the Social Organization of Welfare
- The Influence of Public Institutions on the Shadow Economy: An Empirical Investigation for OECD Countries
- Fiscal Federalism at the Ballot Box: The Relevance of Expressive Voting
- Federalism as an Effective Antidote to Terrorism
