A Positive Theory of Inter-Regional Redistribution and Constitutional Choice∗

The paper studies the effects and the determinants of interregional redistribution in a model of residential and political choice. We find that paradoxical consequences of interjurisdictional transfers can arise. While self-sufficient regions are necessarily identical with respect to policies and average incomes in our model, horizontal redistributive transfers lead to the divergence of regional policies and per capita incomes. Thus, interregional redistribution prevents interregional equality. At the same time, however, it also allows for more interpersonal equality among the inhabitants of each region. For this reason, the voting population may in a decision over the fiscal constitution deliberately implement such a transfer scheme to foster regional divergence.