ABSTRACT
A large literature already argues that federalism does matter in policy affairs, including intergovernmental co-ordination (Scharpf et al. 1976), public administration (O’Toole 1990; Wright 1994), political parties and representation (Brzinski et al. 1999a; 1999b), interest group organization and mediation (Coleman 1987), social policy (Pierson 1995; Pierson and Leibfried 1995), regional development (Hoffman 1981), European integration (Scharpf 1988; Jeffrey and Sturm 1993), and other areas of public policy. We aim to add federalism-as a specific organizational and institutional variable-to the comparative literature explaining economic performance (see, for example, Grier and Tullock 1989; Zysman 1983; Weingast 1995). Neo-institutionalist economists have already made the case that institutional arrangements encourage individuals and organizations to engage in productive economic activity, producing successful economies (North 1990). They tend to assume that laissez-faire approaches to governance and decentralization are economically the most beneficial. Another group of economists argue for the economic superiority of more centralized states, emphasizing the benefits of state collective goods (Zysman 1983; Stiglitz 1986; Summers et al. 1993). We agree with the neo-institutionalists that market incentives are important. In our view, however, they are generally channelled by, and framed in, specific extra-market institutions, of which federalism is an example.
