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Federalism and Decentralization – A Critical Survey of Frequently Used Indicators

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Author Info

  • Lorenz Blume

    ()
    (University of Kassel)

  • Stefan Voigt

    ()
    (Philipps-University Marburg)

Abstract

The economic effects of federalism are unclear: some papers find that federalism has strong positive effects on a number of economically relevant variables, others find negative effects. The results often crucially hinge upon the proxies for federalism used. In this paper, we critically survey the existing indicators for both federalism and fiscal decentralization. We argue that federalism is a constitutional institution whereas decentralization is (the outcome of) a policy choice and that the two ought to be systematically distinguished because decentralization can also occur in non-federally structured states. We further argue that institutional details are very important with regard to federalism and that dummy variables usually capture only very specific aspects of the institutional details. We use factor analysis to test whether the latent variables behind the observed indicators support these assumptions. It is shown that more than two important factors result, implying that a more fine-grained differentiation beyond the distinction between federalism and decentralization might be in order. The correlations of the most important proxies for various aspects of federalism and decentralization with a number of (quasi-) exogenous variables as well as with institutional variables are usually rather modest.

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File URL: http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/21-2008_blume.pdf
File Function: First version, 2008
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Bibliographic Info

Paper provided by Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) in its series MAGKS Papers on Economics with number 200821.

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Length: 30 pages
Date of creation: 2008
Date of revision:
Publication status: Forthcoming in
Handle: RePEc:mar:magkse:200821

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Keywords: Federalism; Fiscal federalism; Decentralization;

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References

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  1. Andreas P. Kyriacoua & Oriol Roca-Sagalésb, 2010. "Fiscal and Political Decentralization and Government Quality," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1005, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  2. Ruben Enikolopov & Ekaterina Zhuravskaya, 2006. "Decentralization and Political Institutions," Working Papers w0065, Center for Economic and Financial Research (CEFIR).
  3. Voigt, Stefan, 2013. "How (Not) to measure institutions," Journal of Institutional Economics, Cambridge University Press, vol. 9(01), pages 1-26, March.
  4. Jan Schnellenbach & Lars P. Feld & Christoph A. Schaltegger, 2006. "The Impact of Referendums on the Centralisation of Public Goods Provision: A Political Economy Approach," CESifo Working Paper Series 1803, CESifo Group Munich.
  5. Feld, Lars P. & Schaltegger, Christoph A. & Schnellenbach, Jan, 2008. "On government centralization and fiscal referendums," European Economic Review, Elsevier, vol. 52(4), pages 611-645, May.
  6. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 1999. "The Quality of Government," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(1), pages 222-79, April.
  7. Beck, Thorsten & Clarke, George & Groff, Alberto & Keefer, Philip & Walsh, Patrick, 2000. "New tools and new tests in comparative political economy - the database of political institutions," Policy Research Working Paper Series 2283, The World Bank.
  8. Edward L. Glaeser & Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer, 2004. "Do Institutions Cause Growth?," NBER Working Papers 10568, National Bureau of Economic Research, Inc.
  9. Fisman, Raymond & Gatti, Roberta, 2000. "Decentralization and corruption - evidence across countries," Policy Research Working Paper Series 2290, The World Bank.
  10. Treisman, Daniel, 2000. "The causes of corruption: a cross-national study," Journal of Public Economics, Elsevier, vol. 76(3), pages 399-457, June.
  11. Lars P. Feld & Stefan Voigt, 2003. "Economic Growth and Judicial Independence: Cross Country Evidence Using a New Set of Indicators," CESifo Working Paper Series 906, CESifo Group Munich.
  12. Thomas Döring & Jan Schnellenbach, 2011. "A tale of two federalisms: Germany, the United States and the ubiquity of centralization," Constitutional Political Economy, Springer, vol. 22(1), pages 83-102, March.
  13. Charles Blankart, 2000. "The Process of Government Centralization: A Constitutional View," Constitutional Political Economy, Springer, vol. 11(1), pages 27-39, March.
  14. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Stefan Voigt & Lorenz Blume, 2012. "The economic effects of federalism and decentralization—a cross-country assessment," Public Choice, Springer, vol. 151(1), pages 229-254, April.
  2. Montolio, Daniel & Trillas, Francesc, 2013. "Regulatory federalism and industrial policy in broadband telecommunications," Information Economics and Policy, Elsevier, vol. 25(1), pages 18-31.
  3. Libman, Alexander, 2009. "Constitutions, Regulations, and Taxes: Contradictions of Different Aspects of Decentralization," MPRA Paper 15854, University Library of Munich, Germany.
  4. Axel Dreher & Kai Gehring & Christos Kotsogiannis & Silvia Marchesi, 2013. "Information Transmission within Federal Fiscal Architectures: Theory and Evidence," Development Working Papers 355, Centro Studi Luca d\'Agliano, University of Milano.
  5. Pierre Salmon, 2013. "Decentralization and growth: what if the cross-jurisdiction approach had met a dead end?," Constitutional Political Economy, Springer, vol. 24(2), pages 87-107, June.
  6. Stefan Voigt, 2009. "Positive Constitutional Economics II—A Survey of Recent Developments," MAGKS Papers on Economics 200936, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  7. Torrisi, Gianpiero & Pike, Andy & Tomaney, John & Tselios, Vassilis, 2011. "Defining and measuring decentralisation: a critical review," MPRA Paper 51441, University Library of Munich, Germany.
  8. Alexander Libman, 2012. "Sub-national political regimes and asymmetric fiscal decentralization," Constitutional Political Economy, Springer, vol. 23(4), pages 302-336, December.
  9. Libman, Alexander, 2011. "Words or deeds – what matters? Experience of recentralization in Russian security agencies," MPRA Paper 29197, University Library of Munich, Germany.
  10. John Ashworth & Emma Galli & Fabio Padovano, 2013. "Decentralization as a constraint to Leviathan: a panel cointegration analysis," Public Choice, Springer, vol. 156(3), pages 491-516, September.

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