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

This paper investigates the role of political representation in explaining regional variation 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 benefits received- 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 30 percent of the variation in per capita transfers to a province over time. This result is robust to controlling for economic and demographic variables that are important determinants of transfers, i.e. (gross) income per capita, the unemployment rate, and the proportion of the population above the retirement age.