ABSTRACT
This chapter considers federalism and the related theory of public goods. It addresses the argument that more extensive states are justified to provide public goods, generally concluding that most putative public goods can be provided privately or by assurance contracts, but that national defence and limited law enforcement may be exceptions. It examines in particular the argument that redistribution of wealth is a public good, and argues that in general it is not, but that it could in limited circumstances be a local public good for some communities. It therefore rejects the generally accepted approach to fiscal federalism, which argues that redistribution and poverty relief should be undertaken at the national level, but argues that to achieve redistribution at the local level communities must be able to restrict such benefits for new arrivals. In general, it argues that those who want more extensive states than the principles argued for in the previous chapters should be able to adopt them at the local level if there are robust exit rights for those for whom the additional government activities are not mutually beneficial.
