The paper tries to shed some light on the problems of centralization and decentralization within an economic union and …

We propose a theory of tax centralization in politico-economic equilibrium. Taxation has dynamic general equilibrium … spending and taxation and create a role for inter governmental grants. The model provides an explanation for the centralization …

federalism in which centralization is less likely to occur where budget referendums are possible. The reason for this result is … that budget referendums reduce the extent to which pro-centralization regions can commit to a low level of spending … delegating the centralization choice to elected poli-cymakers. In addition, it reduces the ability of higher level policy …