Asymmetric decentralization and inequality

Recent political trends in Europe and the United States have highlighted the importance of rising spatial inequality for a range of political outcomes. Existing research has emphasized that distributional conflict between more and less productive subnational regions may result in limited taxation and spending. We ask how the spatial distribution of productive endowments and the institutional allocation of territorial political power jointly shape a fiscal system’s capacity to redistribute. We show, first, that spatial inequality is associated with higher concentration at the top of the income distribution. Second, we show that the two institutional forms through which territorial asymmetry is codified differ: legislative malapportionment is strongly predicted by underlying spatial inequality and is associated with higher inequality and lower progressive taxation, whereas asymmetric regional authority is unrelated to spatial inequality and is associated with higher progressive taxation. Third, with implications for how regional authority is measured, we show that the two domains of the Regional Authority Index differ: asymmetry in shared rule (regions’ influence over national revenue sharing) is associated with higher progressive tax revenue, while asymmetry in self-rule is associated with lower top-end inequality. Because our institutional measures vary almost entirely across rather than within countries, we interpret these findings as long-run equilibrium relationships rather than as causal effects, and we discuss what follows for research on decentralization and regional inequality.