The Economic Effects of Federalism and Decentralization – A Cross-Country Assessment
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Abstract
This paper is based on the conjecture that institutional details matter and
that attempts to estimate the economic effects of federalism by drawing on
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 in
different degrees. This study adds to our knowledge on the transmission
mechanisms of federalism and decentralization.
Keywords
Federalism, Economic Effects of constitutions, Fiscal federalism, decentralization, constitutional economics.