Inequality and the Territorial Fragmentation of Solidarity

Abstract A long tradition of research has shown decentralized political struc-tures as an important cause behind lower levels of redistribution and higher levels of inequality+ This article offers an alternative interpretation of the association between fragmented fiscal structures and higher levels of inequality+ I argue that the distribu-tive effects of decentralization depend on the preexisting territorial patterns of inequal-ity+ Therefore, the political choice between alternative fiscal structures is largely driven by their expected distributive consequences+ As a result, the territorial structure of inequality becomes an important factor to explain why some fiscal structures are more integrated than others+ Two mechanisms link regional income distributions and preferences about the decentralization of redistributive policy: differences in the demand for redistribution associated with interregional income differences, and dif-ferences in the demand for social insurance associated with the incidence of labor market risks+ I test the argument using a data set of fourteen countries in the Orga-nization for Economic Cooperation and Development ~OECD! over the period 1980– 2000+ In addition, I illustrate the potential of the approach by analyzing why socia