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The Economic Effects of Federalism and Decentralization - A Cross-Country Assessment

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  • Stefan Voigt
  • Lorenz Blume

Abstract

This paper explores the idea that institutional details matter and that attempts to estimate the economic effects of federalism by employing a simple dummy variable neglect potentially important institutional details. Based on a principal component analysis, seven aspects of both federalism and decentralization are used as variables for explaining differences in (1) fiscal policy, (2) government effectiveness, (3) economic productivity, and (4) happiness. The results show that institutional details do, indeed, matter. Different aspects of federalism impact on the outcome variables to different degrees. This study adds to our knowledge on the transmission mechanisms of federalism and decentralization.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2009/wp-cesifo-2009-08/cesifo1_wp2766.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2766.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2766

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Keywords: federalism; decentralization; fiscal federalism; economic effects of constitutions; constitutional economics;

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References

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  1. Bjornskov, Christian & Fischer, Justina AV & Dreher, Axel, 2008. "Formal Institutions and Subjective Well-Being: Revisiting the Cross-Country Evidence," MPRA Paper 17159, University Library of Munich, Germany, revised Jul 2009.
  2. Désirée Teobaldelli, 2011. "Federalism and the shadow economy," Public Choice, Springer, Springer, vol. 146(3), pages 269-289, March.
  3. Fisman, Raymond & Gatti, Roberta, 2000. "Decentralization and corruption - evidence across countries," Policy Research Working Paper Series 2290, The World Bank.
  4. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 64, pages 416.
  5. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output Per Worker Than Others?," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 114(1), pages 83-116, February.
  6. SALMON, Pierre, 1987. "Decentralization as an incentive scheme," Institut des Mathématiques Economiques – Document de travail de l’I.M.E. (1974-1993), Institut des Mathématiques Economiques. LATEC, Laboratoire d'Analyse et des Techniques EConomiques, CNRS, Un 98, Institut des Mathématiques Economiques. LATEC, Laboratoire d'Analyse et des Techniques EConomiques, CNRS, Université de Bourgogne.
  7. Rodden, Jonathan, 2003. "Reviving Leviathan: Fiscal Federalism and the Growth of Government," International Organization, Cambridge University Press, Cambridge University Press, vol. 57(04), pages 695-729, September.
  8. Ruben Enikolopov & Ekaterina Zhuravskaya, 2004. "Decentralization and Political Institutions," Economics Working Papers, Institute for Advanced Study, School of Social Science 0045, Institute for Advanced Study, School of Social Science.
  9. Lars P. Feld & Gebhard Kirchgässner & Christoph A. Schaltegger, 2003. "Decentralized Taxation and the Size of Government: Evidence from Swiss State and Local Governments," CESifo Working Paper Series 1087, CESifo Group Munich.
  10. Barro, Robert J. & Lee, Jong-Wha, 1993. "International comparisons of educational attainment," Journal of Monetary Economics, Elsevier, Elsevier, vol. 32(3), pages 363-394, December.
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  15. Feld, Lars P. & Voigt, Stefan, 2003. "Economic growth and judicial independence: cross-country evidence using a new set of indicators," European Journal of Political Economy, Elsevier, Elsevier, vol. 19(3), pages 497-527, September.
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  18. Lorenz Blume & Jens Müller & Stefan Voigt & Carsten Wolf, 2007. "The Economic Effects of Constitutions: Replicating – and Extending – Persson and Tabellini," CESifo Working Paper Series 2017, CESifo Group Munich.
  19. Panizza, Ugo, 1999. "On the determinants of fiscal centralization: Theory and evidence," Journal of Public Economics, Elsevier, Elsevier, vol. 74(1), pages 97-139, October.
  20. David E. Wildasin, 2005. "Fiscal Competition," Working Papers, University of Kentucky, Institute for Federalism and Intergovernmental Relations 2005-05, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
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  22. Frey, Bruno S. & Luechinger, Simon, 2004. "Decentralization as a disincentive for terror," European Journal of Political Economy, Elsevier, Elsevier, vol. 20(2), pages 509-515, June.
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  27. Lorenz Blume & Stefan Voigt, 2011. "Federalism and decentralization—a critical survey of frequently used indicators," Constitutional Political Economy, Springer, Springer, vol. 22(3), pages 238-264, September.
  28. Bjørnskov, Christian & Drehe, Axel & Fischer, Justina A.V., 2008. "On decentralization and life satisfaction," Economics Letters, Elsevier, Elsevier, vol. 99(1), pages 147-151, April.
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Citations

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Cited by:
  1. Stefan Voigt, 2009. "Positive Constitutional Economics II—A Survey of Recent Developments," MAGKS Papers on Economics, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) 200936, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  2. Pelinescu, Elena & Anton, Lucian Vasile & Ionescu, Raluca & Tasca, Radu, 2010. "The Analysis of Local Budgets and Their Importance in the Fight Against the Economic Crisis Effects," Journal for Economic Forecasting, Institute for Economic Forecasting, Institute for Economic Forecasting, vol. 0(5), pages 17-32.
  3. Andrés Rodríguez-Pose & Kristina Maslauskaite, 2011. "Can policy make us happier? Individual characteristics, socio-economic factors and life satisfaction in Central and Eastern Europe," Cambridge Journal of Regions, Economy and Society, Cambridge Political Economy Society, Cambridge Political Economy Society, vol. 5(1), pages 77-96.
  4. Luis Diaz-Serrano & Andrés Rodríguez-Pose, 2011. "Decentralization, happiness and the perception of institutions," Working Papers, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales 2011-07, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales.
  5. Pierre Salmon, 2013. "Decentralization and growth: what if the cross-jurisdiction approach had met a dead end?," Constitutional Political Economy, Springer, Springer, vol. 24(2), pages 87-107, June.
  6. Diaz-Serrano, Luis & Rodríguez-Pose, Andrés, 2014. "Decentralization and the Welfare State: What Do Citizens Perceive?," MPRA Paper 54123, University Library of Munich, Germany.

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