The political economy of regional opting out: distributive implications of a prospective Europe of Regions

This paper builds up a model for analysing regional attitudes towards separation from national states, where separation implies `opting out' of the national income redistribution system and starting a regional one, while at the same time having direct access to supranational institutions. In an overlapping generations (OLG) framework, we show that interregional cooperation can perform the same task as intergenerational cooperation, and can prevent rich regions from wanting to separate from poor nations. In the second part of the paper, we estimate the impact of alternative institutional settings on regional welfare by using data on the inter-governmental financial relations of the Italian regions with the central government. June, 2001 / Accepted: May, 2002 RID="*" ID="*" We would like to thank Margherita Borella, Chris Flinn, Harold Hochman, Jeff Petchey, Stefano Piperno, Pierre Salmon, Bob Searle and seminar participants at Brescia, Torino, Paris (annual meeting of the European Public Choice Society 2001) and Marseille for comments and discussion. We would also like to thank the editor, Kai Konrad, and three referees for their helpful comments.