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Political competition, power allocation and welfare in unitary and federal systems

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Listed author(s):
  • Marco Alderighi

    ()

    (Università della Valle d'Aosta, Università Bocconi, The Rimini Centre for Economic Analysis, Italy)

  • Christophe Feder

    (Università degli Studi di Torino, Italy)

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    Abstract

    The paper studies how political competition among self-interested parties affects welfare and power allocation between government levels. We find that the unitary and the federal systems of government are not welfare-maximizing, leading to a higher and a lower than optimal centralization level, respectively. Second best is achieved under the system which induces larger potential welfare losses in response to similar deviations from the first best: the risk of large losses force parties to stay closer to the optimum in order to keep the likelihood of winning the elections high. The federal system yields to the second-best solution when inter-jurisdictional spillovers are weak; vice versa a unitary system is better when such spillovers are strong.

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    Paper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 23_14.

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    Date of creation: Nov 2014
    Handle: RePEc:rim:rimwps:23_14
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