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The economic effects of federalism and decentralization—a cross-country assessment

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Abstract

This paper explores the idea that institutional details matter and that attempts to estimate the economic effects of federalism by employing a simple dummy variable neglect potentially important institutional details. Based on a principal component analysis, seven aspects of both federalism and decentralization are used as variables for explaining differences in (1) fiscal policy, (2) government effectiveness, (3) economic productivity, and (4) happiness. The results show that institutional details do, indeed, matter. Different aspects of federalism impact on the outcome variables to different degrees. This study adds to our knowledge on the transmission mechanisms of federalism and decentralization.

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Authors and Affiliations

  1. Institute of Law & Economics, University of Hamburg, Rothenbaumchaussee 36, 20148, Hamburg, Germany

    Stefan Voigt

  2. Department of Economics and Business Administration, Philipps University Marburg, Barfüßertor 2, 35037, Marburg, Germany

    Lorenz Blume

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  1. Stefan Voigt
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  2. Lorenz Blume
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Correspondence to Stefan Voigt.

Additional information

The paper was finished while S. Voigt was a Senior Fellow at the Institute for Advanced Study in Greifswald (Germany).

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Voigt, S., Blume, L. The economic effects of federalism and decentralization—a cross-country assessment. Public Choice 151, 229–254 (2012). https://doi.org/10.1007/s11127-010-9745-z

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  • DOI: https://doi.org/10.1007/s11127-010-9745-z

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