Abstract
We study a politico-economic model of federations with both federal and supplemental regional provision of a local (impure) public good with spillover effects. Regional differences in average income levels and externalities of provision induce differences in preferences over federal and regional levels of provision. Although the voters' preferences are not single-peaked, we provide sufficient conditions for the existence of a voting equilibrium and characterize its properties under alternative federal institutional arrangements. The voting equilibrium is unique but displays markedly different substantive characteristics under different conditions on parameters. We show that the inter-regional redistributive tensions present in federations lead to differences in regional preferences over federal institutions and may help to explain otherwise puzzling patterns in state support for federal programs.
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