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Endogenous Policy Decentralization: Testing the Central Tenet of Economic Federalism

  • Koleman S. Strumpf
  • Felix Oberholzer-Gee
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    The economic theory of federalism is largely built around the premise that more heterogeneous preferences result in more decentralized policy making. Despite its prominence and importance, this central tenet of economic federalism has never been empirically evaluated. This paper presents the first formal test of the link between preference heterogeneity and endogenous policy decentralization using as a case study liquor control in the United States over the period 193470. The results are reassuring: States with more heterogeneous preferences are more likely to decentralize liquor control and allow for local government decision making.

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    File URL: http://dx.doi.org/10.1086/324393
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    Article provided by University of Chicago Press in its journal Journal of Political Economy.

    Volume (Year): 110 (2002)
    Issue (Month): 1 (February)
    Pages: 1-36

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    Handle: RePEc:ucp:jpolec:v:110:y:2002:i:1:p:1-36
    Contact details of provider: Web page: http://www.journals.uchicago.edu/JPE/

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    1. Baltagi, Badi H & Griffin, James M, 1995. "A Dynamic Demand Model for Liquor: The Case for Pooling," The Review of Economics and Statistics, MIT Press, vol. 77(3), pages 545-54, August.
    2. Besley, Timothy & Case, Anne, 2000. "Unnatural Experiments? Estimating the Incidence of Endogenous Policies," Economic Journal, Royal Economic Society, vol. 110(467), pages F672-94, November.
    3. Christopher J. Ruhm, 1995. "Alcohol Policies and Highway Vehicle Fatalities," NBER Working Papers 5195, National Bureau of Economic Research, Inc.
    4. Kenkel, Donald S, 1993. "Drinking, Driving, and Deterrence: The Effectiveness and Social Costs of Alternative Policies," Journal of Law and Economics, University of Chicago Press, vol. 36(2), pages 877-913, October.
    5. Besley, Timothy J. & Coate, Stephen, 2000. "Centralized versus Decentralized Provision of Local Public Goods: a Political Economy Analysis," CEPR Discussion Papers 2495, C.E.P.R. Discussion Papers.
    6. Robert P. Inman & Daniel L. Rubinfeld, 1997. "Rethinking Federalism," Journal of Economic Perspectives, American Economic Association, vol. 11(4), pages 43-64, Fall.
    7. Toma, Eugenia Froedge, 1988. "State Liquor Licensing, Implicit Contracting, and Dry/Wet Counties," Economic Inquiry, Western Economic Association International, vol. 26(3), pages 507-24, July.
    8. Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-47, February.
    9. Michael Grossman, 1993. "Policy Watch: Alcohol and Cigarette Taxes," Journal of Economic Perspectives, American Economic Association, vol. 7(4), pages 211-222, Fall.
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