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Federalism and Decentralization – A Critical Survey of Frequently Used Indicators

  • Lorenz Blume

    ()

    (University of Kassel)

  • Stefan Voigt

    ()

    (Philipps-University Marburg)

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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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
Contact details of provider: Postal: Universitätsstraße 25, 35037 Marburg
Phone: 06421/28-1722
Fax: 06421/28-4858
Web page: http://www.uni-marburg.de/fb02/Email:


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  1. 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.
  2. Jan Schnellenbach & Lars Feld & Christoph schaltegger, 2007. "The Impact of Referendums on the Centralisation of Public Goods Provision: A Political Economy Approach," Working Papers 0440, University of Heidelberg, Department of Economics, revised May 2007.
  3. 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.
  4. Enikolopov, Ruben & Zhuravskaya, Ekaterina, 2007. "Decentralization and political institutions," Journal of Public Economics, Elsevier, vol. 91(11-12), pages 2261-2290, December.
  5. 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, vol. 19(3), pages 497-527, September.
  6. Fisman, Raymond & Gatti, Roberta, 2000. "Decentralization and corruption - evidence across countries," Policy Research Working Paper Series 2290, The World Bank.
  7. Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert Vishny, . "The Quality of Government," Working Paper 19452, Harvard University OpenScholar.
  8. Andreas P Kyriacou & Oriol Roca-Sagal�s, 2011. "Fiscal and political decentralization and government quality," Environment and Planning C: Government and Policy, Pion Ltd, London, vol. 29(2), pages 204-223, April.
  9. 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, vol. 114(1), pages 83-116, February.
  10. Voigt, Stefan, 2013. "How (Not) to measure institutions," Journal of Institutional Economics, Cambridge University Press, vol. 9(01), pages 1-26, March.
  11. Charles Blankart, 2000. "The Process of Government Centralization: A Constitutional View," Constitutional Political Economy, Springer, vol. 11(1), pages 27-39, March.
  12. 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.
  13. Treisman, Daniel, 2000. "The causes of corruption: a cross-national study," Journal of Public Economics, Elsevier, vol. 76(3), pages 399-457, June.
  14. 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.
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