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 GmbH in its series CESifo Working Paper Series with number
CESifo Working Paper No. 1585.
Find related papers by JEL classification: H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism R59 - Urban, Rural, and Regional Economics - - Regional Government Analysis - - - Other
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