Fiscal Federalism and Legislative Malapportionment: Causal Evidence from Independent but Related Natural Experiments

We exploit three natural experiments in Argentina in order to study the role of legislative malapportionment on the biased federal tax sharing scheme prevalent in the country. We do not find support to attribute it to legislative malapportionment during periods when democratic governments were in place; nor did we find any evidence that the tax sharing distribution pattern became less biased under centralized military governments. We argue that these results are at least partly attributable to two of Argentina's institutional characteristics: first, the predominance of the executive branch over the legislature (main fiscal decisions are the outcome of a bargaining process among executive authorities); and, second, the lack of any significant difference in the pattern of geographic representation in the executive branch under democratic and autocratic governments. Thus, the observed biases in the distribution of tax revenues among the Argentine provinces are not caused by legislative malapportionment, but are probably the result of a more structural equilibrium that transcends the geographic distribution of legislative representation and even the nature of the political regime. Our findings illustrate the importance of informal institutions and de facto mechanisms to study fiscal federalism in developing countries.