Federalism's Values and the Value of Federalism
What is it about federal governance that makes it so attractive to economists, political philosophers, and legal scholars and is there any evidence that would suggest all this attention is warranted? Proponents see federalism as a means to more efficient public and private economies, as the foundation for increased political participation and democratic stability, and as important check on governmental abuses of personal rights and liberties. This study provides a working definition of federal governance and classifies a sample of 73 countries as either a constitutionally-based federal democracy, an administratively-based federal democracy, a unitary democracy, a federal dictatorship, or a unitary dictatorship. Governance is then related to eleven measures of economic, democratic, and rights performance. Three conclusions follow. First, decentralized policy-making does have a unique contribution to make to a society's ability to enforce property rights, to protect political and civil rights, and then because of such rights protections, to enhance private sector economic performance. Second, while policy decentralization is the key to federalism's strong rights and economic performance and can be achieved within a unitary government by fiat, constitutionally established provincial (or state) governments provide an extra and important protective barrier for policy decentralization. Federal institutions protect policy decentralization, and policy decentralization provides federalism's valued outcomes. Third, federalism needs democracy; there is no evidence that adding policy decentralization or provinces to a dictatorship significantly improves a dictatorship's economic or rights performance.
The author would like to thank Grant Long and Jonathan Stott for their excellent research assistance on this project, Richard Bird and Anwar Shah for their helpful comments regarding the governance classifications, and Ruth Jody for her understanding. Excellent comments were provided by conference participants at the CESifo-Kentucky Conference on Federalism and by two anonymous referees.
The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.