Abstract
In this paper, I provide an additional explanation to the intentions to secede related to expected changes in the tax avoidance activities after the "break down of a nation". To demonstrate my points, I use a tax avoidance model where active avoidance providers make a decision about the price and quantity of their services. Secession gives the avoidance provider the option of setting different prices in separate regions. As a consequence, the price for the tax avoidance service may fall in the poorer region and the elite of this region would he able to avoid the tax, which is impossible in union. Moreover, regional separation may lead to tremendous changes in the shape of income distribution. Facing these changes, new governments would be forced to change the tax codes. Thus, the government of the richer region may reduce tax rates in order to enlarge the tax revenue collection. This decision would not only increase private consumption for tax payers but also for rich tax avoiders, since the reduction of tax duties leads to a decline in the price for the tax avoidance service. The sum of tax revenues in both regions would fall significantly after the secession, however, which means that governments would provide less public goods. If the value of public goods is low for the citizens, however, many households would be better off after the secession. And thus, the model predicts a higher secession tension in economies with less efficient governments. This explains the increase in the popularity of secession ideas at the beginning of transitions, when the population of the restructuring countries negatively evaluated the provision of public goods. To avoid a breakdown of the state, the government should reduce inefficient spending and tax duties. The promotion of democracy or the political influence of poor households may reduce the tendency to separate.