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The Elgar Companion to Public Economics

Empirical Public Economics

Edited by Attiat F. Ott and Richard J. Cebula

Attiat Ott and Richard Cebula have recognised the need to present, in an accessible and straightforward way, the voluminous literature in the public economics arena. Advances in econometric techniques and the spillover of knowledge from other disciplines made it difficult, not only for students but also for lecturers, to accurately find the information they need.
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Chapter 22: Secession and Exit: An Analysis of Two Competing Hypotheses Constantine Alexandrakis and Robert T. Jones

Constantine Alexandrakis and Robert T. Jones


22 Secession and exit: an analysis of two competing hypotheses Constantine Alexandrakis and Robert T. Jones* 1 Introduction During a trip to the Norwegian fjords, one of us learned how some of the fjords’ early residents avoided paying taxes by building their houses on the fjords’ steep slopes. When the tax collector visited their area they pulled up the ladder leading to their residence, leaving the collector with no way of reaching their home. Many other cases of fiscally-induced secession can be found throughout history. Yet economists have turned their attention to secession only recently, and especially after the publication of a seminal paper by Buchanan and Faith (1987). Prior to that, inspired by Tiebout’s classic work (1956), economists were focused on external exit. Also referred to as ‘voting with their feet’, external exit suggests that people will move to the administrative jurisdiction whose provision of public goods matches best their personal preferences. Buchanan and Faith assumed that secession is driven by fiscal exploitation, a situation in which the members of a sharing coalition extract transfers from the government while, despite paying taxes, the members of the non-sharing coalition cannot. The threat of secession by the non-sharing coalition places a limit, however, on fiscal exploitation, because if the members of the nonsharing coalition find it less costly to form a separate polity and finance the provision of a necessary public good (for example defense) on their own, they will secede. On the other hand, if the members of the non-sharing...

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