Fiscal Disparity, Institutions and Asymmetric Yardstick Competition
|Schlüsselwörter||JEL: D72, H77|
This study investigates the extent to which the costliness of rent appropriation might mitigate the yardstick bias as described by Allers (2012). The study develops a yardstick competition model when considering a disparity in the costs of rent of rent appropriation and shows that higher costs of rent appropriation in one jurisdiction may constrain rent appropriation not only in that jurisdiction but also in others. Accordingly, the incumbent of the rich jurisdictions cannot fully exploit his fiscal advantages. As a result, political accountability increases in a counter-intuitive manner.