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Federalism, Decentralization, and Economic Growth

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  • Lars P. Feld

    () (Faculty of Business Administration and Economics, Philipps Universitaet Marburg)

  • Horst Zimmermann

    (Faculty of Business Administration and Economics, Philipps Universitaet Marburg)

  • Thomas Döring

    () (Faculty of Business Administration and Economics, Philipps Universitaet Marburg)

Abstract

The distribution of competencies between the different levels of a federal system may have remarkable effects on economic growth, because mainly the regions of a country contribute to national economic development. Thus, a government’s economic policy is reasonably shaped along regional lines. The theoretical discussion in economics focuses however on the efficiency aspects of a decentralized provision and financing of public services; rarely the argument is raised that decentralization or federalism increases growth through a higher ability of the political system to innovate and to carry out reforms. After a discussion of the theoretical arguments on federalism and growth, we address the empirical question in this paper how important the assignment of decision making competencies and the design of fiscal federalism are for economic development. Finally, on the basis of existing theoretical and empirical studies on economic growth and federalism, open questions and possible ways of answering them are presented.

Suggested Citation

  • Lars P. Feld & Horst Zimmermann & Thomas Döring, 2004. "Federalism, Decentralization, and Economic Growth," Marburg Working Papers on Economics 200430, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  • Handle: RePEc:mar:volksw:200430
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    File URL: http://www.uni-marburg.de/fb02/makro/forschung/gelbereihe/artikel/2004-30-FederalismGrowthDP_gesamt.pdf
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    References listed on IDEAS

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    Cited by:

    1. Oliver Budzinski, 2006. "An Economic Perspective on the Jurisdictional Reform of the European Merger Control System," Marburg Working Papers on Economics 200608, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).

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