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On the Incentives to Experiment in Federations

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  • Christos Kotsogiannis
  • Robert Schwager

Abstract

Conventional wisdom has it that policy innovation is better promoted in a federal rather than in a unitary system. Recent research, however, has provided theoretical evidence to the contrary: a multi-jurisdictional system is characterized - due to the existence of a horizontal information externality - by under-provision of policy innovation. This paper presents a simple model that introduces political competition for federal office. Under such competition political actors use the innovative policies in order to signal ability to the electorate. In the equilibrium analyzed policy innovation may occur more frequently than in a unitary system. It is thus shown that, once electoral motives are accounted for, the conventional wisdom is likely to be a valid proposition.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1585.

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Date of creation: 2005
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Handle: RePEc:ces:ceswps:_1585

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Keywords: fiscal federalism; policy innovation; policy experimentation;

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References

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  1. Rincke, Johannes, 2005. "Neighborhood Influence and Political Change: Evidence from US School Districts," ZEW Discussion Papers 05-16, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Strumpf, Koleman S, 2002. " Does Government Decentralization Increase Policy Innovation?," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 4(2), pages 207-41.
  3. Wallace E. Oates, 1999. "An Essay on Fiscal Federalism," Journal of Economic Literature, American Economic Association, vol. 37(3), pages 1120-1149, September.
  4. Christos Kotsogiannis & Robert Schwager, 2006. "Political Uncertainty and Policy Innovation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 8(5), pages 779-805, December.
  5. Johannes Rincke, 2005. "Neighborhood Influence and Political Change: Evidence from US School Districts," Public Economics 0511011, EconWPA.
  6. Kollman, Ken & Miller, John H & Page, Scott E, 2000. "Decentralization and the Search for Policy Solutions," Journal of Law, Economics and Organization, Oxford University Press, vol. 16(1), pages 102-28, April.
  7. Michael J. Keen & Christos Kotsogiannis, 2002. "Does Federalism Lead to Excessively High Taxes?," American Economic Review, American Economic Association, vol. 92(1), pages 363-370, March.
  8. Robert P. Inman & Daniel L. Rubinfeld, 1997. "Rethinking Federalism," Journal of Economic Perspectives, American Economic Association, vol. 11(4), pages 43-64, Fall.
  9. Rincke, Johannes, 2006. "Competition in the public school sector: Evidence on strategic interaction among US school districts," Journal of Urban Economics, Elsevier, vol. 59(3), pages 352-369, May.
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Citations

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Cited by:
  1. Johannes Rincke, 2009. "Yardstick competition and public sector innovation," International Tax and Public Finance, Springer, vol. 16(3), pages 337-361, June.
  2. Andreas Wagener, 2009. "Tax Competition, Relative Performance and Policy Imitation," CESifo Working Paper Series 2723, CESifo Group Munich.
  3. Axel Dreher & Justina Fischer, 2008. "Decentralization as a disincentive for transnational terror? System stability versus government efficiency: an empirical test," TWI Research Paper Series 41, Thurgauer Wirtschaftsinstitut, Universität Konstanz.
  4. Axel Dreher & Justina A. V. Fischer, 2009. "Government decentralization as a disincentive for transnational terror? An empirical analysis," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 313/2009, Department of Economics, University of Hohenheim, Germany.
  5. Erdogdu, Erkan, 2013. "A cross-country analysis of electricity market reforms: Potential contribution of New Institutional Economics," MPRA Paper 47496, University Library of Munich, Germany.
  6. Johannes Rincke, 2006. "Policy innovation in local jurisdictions: Testing for neighborhood influence in school choice policies," Public Choice, Springer, vol. 129(1), pages 189-200, October.
  7. Axel Dreher & Justina A.V. Fischer, 2008. "Decentralization as a disincentive for transnational terror? An empirical test," University of St. Gallen Department of Economics working paper series 2008 2008-01, Department of Economics, University of St. Gallen.
  8. Amihai Glazer & Hiroki Kondo, 2007. "Innovation and Imitation Across Jurisdictions," Working Papers 070807, University of California-Irvine, Department of Economics.
  9. Rincke, Johannes, 2007. "Policy diffusion in space and time: The case of charter schools in California school districts," Regional Science and Urban Economics, Elsevier, vol. 37(5), pages 526-541, September.
  10. Erdogdu, Erkan, 2013. "Essays on Electricity Market Reforms: A Cross-Country Applied Approach," MPRA Paper 47139, University Library of Munich, Germany.
  11. Axel Dreher, 2006. "Power to the People? The Impact of Decentralization on Governance," KOF Working papers 06-121, KOF Swiss Economic Institute, ETH Zurich.
  12. Millimet, Daniel L., 2013. "Environmental Federalism: A Survey of the Empirical Literature," IZA Discussion Papers 7831, Institute for the Study of Labor (IZA).
  13. Bjørnskov, Christian & Drehe, Axel & Fischer, Justina A.V., 2008. "On decentralization and life satisfaction," Economics Letters, Elsevier, vol. 99(1), pages 147-151, April.

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