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Does Fiscal Federalism Deter Or Spur Secessionist Movements?

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Does Fiscal Federalism Deter Or Spur Secessionist Movements? Does Fiscal Federalism Deter or Spur Downloaded from https://academic.oup.com/publius/article-abstract/48/2/161/4562682 by University Library of Salzburg user on 27 May 2020 Secessionist Movements? Empirical Evidence from Europe Martin Rode*, Hans Pitlik† and Miguel Angel Borrella Mas‡ *Universidad de Navarra; [email protected] †Austrian Institute of Economic Research; [email protected] ‡Universidad de Navarra; [email protected] Popular and scientific contributions often call for increased regional decision-making power to manage secessionist conflict, assuming that fiscally federalized countries are less prone to disintegrate politically. From a theoretical standpoint this is not clear though, as federalism creates an institutional paradox where autonomous legislative and bureaucratic structures can potentially be used to make secessionism a viable strategy in the first place. In particular, the role of asymmetric territorial arrangements in this association is crucially underexplored at present. Using electoral data on separatist political movements from a large variety of European regions since the mid-1990s, our findings indicate that regions with comparatively higher fiscal and institutional autonomy are more prone to vote for secessionist parties. Accounting for possible endogeneity, asymmetric territorial self-governance seems to cause much stronger incentives to vote for secessionist platforms, while the association with fiscally more symmetric arrangements is surprisingly small. The referendum on Scottish independence in September 2014 and the ongoing political conflict in Spain over a plebiscite on Catalan independence are just the latest expressions of a European trend, where secessionist platforms are increasingly gaining ground in the political discourse (Griffiths 2016). This evolution constitutes a notable development, as it is all about creating smaller political entities with governments that are perceived to be closer to local populations, rather than creating bigger and politically more powerful nation states, as was the trend a century ago. Alesina and Spolaore (2003) and Desmet et al. (2011) argue that all nations essentially face a tradeoff between increasing returns in the provision of public goods and the costs of greater cultural heterogeneity. Economically, populous countries are better able to provide key public goods, such as security and monetary policy, at diminishing marginal costs to the individual citizen, giving Publius:TheJournal of Federalism volume 48 number 2, pp.161^190 doi:10.1093/publius/pjx060 AdvanceAccess publication October 23, 2017 ß TheAuthor 2017. Published by Oxford University Press on behalf of CSF Associates: Publius, Inc. All rights reserved. For permissions, please email: [email protected] 162 M. Rode, H. Pitlik and M. A. Borrella Mas them a decisive edge over smaller states. Large political units are also better equipped to reap gains from internal trade. According to Lecours (2011) and Downloaded from https://academic.oup.com/publius/article-abstract/48/2/161/4562682 by University Library of Salzburg user on 27 May 2020 Keating (1999, 2012), the deepening of economic and political integration in the European Union (EU), with a common market and (for most member states) a joint currency, and as a provider of intra-European security may have facilitated regional secessionism by reducing the benefits of certain regions to pertain to a large nation state. To calm secessionist tendencies, devolution of decision-making powers to the sub-state level is often called for: If regional governments have more fiscal autonomy, it is argued, this will ultimately reduce secessionism (Horowitz 1985; Bermeo 2002; Gurr 2000; Erk and Anderson 2009).1 Notwithstanding, enhanced federalism can create an important institutional paradox: The same legislative and bureaucratic structures that are supposed to manage separatist conflict can potentially be used by regional politicians to make secessionism a viable strategy in the first place (Horowitz 1985; Anderson 2004). Territorial self-governance could potentially serve as a springboard to eventual secession. Weingast (2013) claims we generally know too little about the impact of decentralization on secessionist conflict, where especially the role of fiscal federalism is still underexplored (but see: Brancati 2006; Sorens 2004, 2005, 2012). Perhaps most importantly, the issue of symmetry in fiscal arrangements has not been addressed empirically in this context. It may make a significant difference though, whether all regions of a country have similar powers on taxation and service provision, or whether powers are distributed asymmetrically among jurisdictions (Congleton 2006; Zuber 2011). Obviously, these are vital questions for the constitutional design of federal systems. Using election data on separatist political movements from a variety of European countries since the mid-1990s, we empirically analyze effects of symmetric and asymmetric fiscal federal arrangements on secessionist movements. For reasons of comparability, we limit our sample to member countries of the EU and two closely associated countries (Norway and Switzerland), so that the external conditions faced by the individual states in terms of trade and security are broadly similar. As secessionism is not confined to one type of state organization, our country sample includes formally federal and non-federal states for which sufficient data is available on a regional level. Findings suggest that more fiscally autonomous regions are indeed more likely to vote for secessionist parties, but that results are highly dependent on the type of arrangement present: Asymmetric territorial self- governance appears to cause higher electoral support for secessionist platforms, probably because of the incentives that it creates for center-periphery bargaining, while the association of secessionism with symmetric fiscal federalist arrangements is close to negligible. Does Fiscal Federalism Deter or Spur Secessionism 163 The remainder of the article is organized as follows: The next section conducts a tentative review of the relevant literature and formulates the central hypotheses. Downloaded from https://academic.oup.com/publius/article-abstract/48/2/161/4562682 by University Library of Salzburg user on 27 May 2020 This is followed by a description of the data and our research strategy, succeeded by a section that presents preliminary findings from an Ordinary Least Squares analysis. The final section conducts a series of Difference-in-Difference estimations to firmly establish a causal relation in our findings, followed by the conclusions. Literature Review and Hypothesis Development The literature mentions a number of possible sources and motives for secessionist tendencies within a country. Several authors note that interest and identity both play a major role in secessionist mobilization, and one is probably not sufficient without the other, but all find economic factors to play a crucial role in fueling secessionist demands (Collier and Hoeffler 2006; Sorens 2012; Grossman and Lewis 2014; Sambanis and Milanovic 2014). Since many wealthy EU regions with historically separate identities are nowadays subject to national and EU wide territorial redistribution, secessionism might be perceived as legitimate to defend tax revenues and limit membership to just one transfer union, instead of two (Scharnagl 2012). Regarding the possible fiscal causes that underlie secessionism, Buchanan and Faith (1987) argue that it can be a reaction to unjust taxation, and comparatively wealthy regions might choose this path to achieve a more equitable tax treatment through a government that is closer to the local electorate.2 Secessionist support can be further spurred by the presence of large natural resource endowments, as highlighted by Collier and Hoeffler (2006), Sorens (2012), or Gehring and Schneider (2016), exacerbating conflicts over resources revenues between endowed sub-state territories and central governments. To calm secessionist tendencies that originate from conflicts over identity and interest, increased decision-making power at the sub-central level might provide a viable solution: If regional governments enjoy more fiscal autonomy and the means to provide public goods through its bureaucracy, it is argued, this will ultimately reduce secessionist motivations. Federalism, then, might be a formidable tool to accommodate territorially based conflicts, while maintaining the integrity of existing nation states (Erk and Anderson 2009). Horowitz (1985) and Bermeo (2002) both argue that the division of authority between states and regions has the potential to reduce inter- group conflict, while Bermeo (2002) further highlights that no violent separatist movement has ever succeeded in a federal democracy. Notwithstanding, the scholars cited above also highlight that this rationale is not as clear as it might seem at first sight: Theoretically, enhanced federalism, or territorial self-governance, can create an important institutional paradox: The same legislative and bureaucratic structures that are supposed to manage separatist conflict can potentially be used to make secession a viable strategy in the first place. 164 M. Rode, H. Pitlik and M. A. Borrella Mas Other factors fueling secessionism in such a context are the presence of powerful group grievances (Horowitz 1985; Anderson 2004), the generalization Downloaded from https://academic.oup.com/publius/article-abstract/48/2/161/4562682
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