When is two better than one? How federalism mitigates and intensifies imperfect political competition

The current paper models power-maximizing politicians’ behavior subject to imperfect political competition and perfect citizen mobility. It then analyzes the welfare implications of federal and non-federal structures. The model abstracts from both heterogeneous preferences (the most common argument...

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Bibliographic Details
Published in:Journal of public economics 2001-04, Vol.80 (1), p.99-119
Main Author: Caplan, Bryan
Format: Article
Language:English
Subjects:
Economic impact
Economic models
Equilibrium
Externalities
Federalism
Imperfect competition
Imperfect political competition
Intergovernmental competition
Optimal federalism
Political behavior
Political parties
Political theory
Politicians
Public economics
Studies
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Summary:The current paper models power-maximizing politicians’ behavior subject to imperfect political competition and perfect citizen mobility. It then analyzes the welfare implications of federal and non-federal structures. The model abstracts from both heterogeneous preferences (the most common argument in favor of federalism) and externalities (the most common argument against), showing that even in this simplified setting federalism has important welfare implications. There is one class of equilibria in which more federalism has the purely beneficial effect of offsetting imperfections in the political process. However, there is also a second class of equilibria in which citizen mobility makes political imperfections more severe by creating ‘safe districts’ for both political parties.
ISSN:0047-2727
1879-2316
DOI:10.1016/S0047-2727(00)00106-7