Introduction Under what conditions are territorial legislative designs decisive in shaping intergovernmental fiscal relations? As decentralization became more widespread in the developing world in the 1980s and 1990s, it ignited a great deal of scholarly attention on the economic viability of federalism. One of the most salient, mostly unchallenged, theses about this question traces the superiority of decentralization to normative economic thinking on federalism. Drawing on Charles Tiebout’s (1956) work, it is argued that decentralization limits the ability of government officials to supply local goods on political grounds. In this light, Barry Weingast (1995) developed the concept of market-preserving federalism to connote systems in which decentralized control over the economy by subnational governments within a common market precludes the central government from encroaching on the political and economic rights of its citizens. This arrangement, the argument goes, underpins fiscal responsibility, providing no incentives for the constituent parts to overuse the common pool of federal economic resources. In recent years, however, as the “desirability” of federalism has burst upon the scene as a subject of interest to scholars and policy-makers, Weingast’s assumptions have come under criticism (Rodden and Ackerman 1997). Perhaps the most important common thread running through these works is that normative public choice theories largely ignore the role of bureaucracy and the political framework in which intergovernmental decisions are taken. Put differently, Weingast’s theoretical roadmap fails to account for the poor fiscal performance of many federal states such as India and the large Latin American federal states of Argentina, Brazil and Mexico, let alone the Russian experience which kindled a cacophony of epithets such as market-distorting federalism (Slider 1997) and market-hampering federalism (Zhuravskaya 2000). The major alternative approach to assessing the putative advantages of federalism through a political economy framework has been that of normative studies on the concept of representation. Early normative approaches, such as that to be found in the seminal works of Moffet (1895) and Merriam (1931), tended to view the institutional underpinnings of federalism as decisive in guaranteeing fair legislative decision-making in multi-tiered polities. Extolling the virtues of

the US Great Compromise (i.e. the decision to grant each state equal representation in the Senate), this scholarship has emphasized that particular principles or structures of government are necessary conditions to be present in any federal system. Namely, every federation must have a second chamber in the legislature representing the regions and this chamber should be safeguarded against the potential hegemony of the larger subnational units in the federation. Advocates of this perspective praise equal representation in the second (i.e. upper, territorial) chamber as a check on the tyranny of the majority, drawing on the spirit of The Federalist Papers and suggesting that legislative overrepresentation reinforces pluralism (Elazar 1987: 102-104; Morley 1959). However, as Burgess (2006: 205) claims, overrepresentation in the territorial chamber is the exception rather than the rule in modern federations (excluding the highly overrepresented Senates in Argentina, Brazil and, to a much lesser extent, Australia), let alone that studies on US federalism cast doubt on the benefits of Senate overrepresentation in terms of low levels of party competition in many states, inequitable distribution of state transportation and education funds, and a failure to adopt or expand social welfare programs, among others (Lee and Oppenheimer 1999: 4). More critically, as I will seek to show in this chapter, most scholarship of a normative nature has failed to provide empirical grounds to support their advocacy of non-proportional legislative representation. The analytical challenge, then, is to develop a theory of comparative federal fiscal performance based on how the institutional structure of federalism provides incentives for political officials at all levels of government. Surprisingly, few scholars have focused on this central question in the study of comparative federalism. The first notable exception is the research undertaken by Wibbels (2005), showing that intergovernmental partisan harmony achieved via coattails is the most important factor to extend market reform to the subnational governments in the developing world. This situation arises when the national government can rely on copartisans at the regional level not as a result of centralized control or the use of sticks and carrots, but rather as the basis for intergovernmental coordination of policies. Another study addressing the subject matter even more directly is Braun et al.’s (2002) analysis of the influence of federalism on fiscal policy making. They conclude that intergovernmental veto powers, namely whether the federal or subnational governments have the upper hand in the design of fiscal policies, are decisive to explain policy outputs such as budget deficits. Third, Rodden (2006)’s study on the perils of fiscal federalism shows that subnational governments can spend well beyond their means because the structure of federalism shifts bailout decisions away from bank regulators and technocrats and turns national legislatures into king-makers when it comes to the control of subnational fiscal profligacy. Stressing the role of electoral externalities, Rodden claims that state politicians will only ponder about the national consequences of their fiscal policies when their electoral fate is tied to that of their federal-level counterparts. Persuasive as the above-mentioned works are, they fall short of theorizing institutional complexity in federal systems as a result of their omission of the theoretically unwieldy topic of legislative malapportionment. As suggested above, beyond

the normative issue of whether this built-in overrepresentation in federal systems is necessary, an extensive empirical literature confirms that legislative malapportionment has not only a decisive effect on the coalition-building efforts of executives at the central and subnational level but also substantial and direct consequences on public policy (USA: Ansolabehere et al. 2002; Atlas et al. 1995; Argentina: Gibson and Calvo 2000; Germany: Pitlik et al. 2005; European Union: Rodden 2002a). The logic is simple: because overrepresented, sparsely populated, economically vulnerable jurisdictions can be co-opted in the legislate process at the least cost and hence offer more “political bang for the buck”, public spending and distributive politics will be biased in favor of said entities. While there is no shortage of empirical evidence to establish that malapportionment “matters”, this chapter argues that the major challenge is to develop, or refine existing, theoretical tools to map out the precise institutional incentives at play. Above all, if malapportionment is to have a causal effect on fiscal policies, it is of essence to unravel its dynamic relationship with its most proximate correlates, namely socio-demographic and economic conditions, electoral rules and party politics. How does malapportionment affect the regional disparities that politicize the federal budgetary process? By increasing the number of small, overrepresented jurisdictions, do malapportioned electoral rules induce federal partisan biases? These questions indicate how difficult it is to disentangle federalism from other institutional variables such as the electoral and party systems and the importance of analyzing federalism within the broader political system in which it is embedded. As a central parameter in the design of federal institutions, the biased apportionment of seats to national legislative bodies highlights the tension between the empowerment of subnational actors (and the concomitant enhancement of democratic accountability) and the accompanying possibilities for clientelistic and rent-seeking behavior. Put differently, the unintended consequence of compensating underpopulated, oftentimes poorer, jurisdictions for their disadvantaged position is their over-empowerment to tilt federal policies beyond social welfare criteria. Thus, I claim that a progressive, normativeladen, overrepresentation of small jurisdictions often results in regressive, social welfare-detrimental, pork barrel fiscal policies. Aside from this chapter’s contribution to the intergovernmental fiscal relations literature, I seek to engage in the broad theoretical debate in comparative politics about the role of institutions in shaping political and economic outcomes. Particularly, this research aims to underscore how federal institutions may at times undermine the normative purposes for which they were designed in the first place. The overrepresentation of the smallest units, which is the cornerstone of the US Great Compromise, not only empowers the legislators of these units to coalesce in demanding policy concessions at the expense of the populous states, but may also generate sub-optimal outcomes in terms of fair economic distribution and performance. Consequently, instead of taking federal institutions as given, I show that whether they help effective policy-making to accommodate territorially based political and economic differences is ultimately an empirical question. In this regard, one common theme throughout this chapter

is that while institutions themselves become loci of political contestation, the power asymmetries documented in this study are not likely to disappear unless reforms of Senate apportionment take effect. Considering the multiplicity of entrenched interests hindering institutional reforms and thus in light of the apparent endurance of legislative overrepresentation, the failure to elaborate a systematic understanding of its effects has more than academic implications. In what follows, I discuss these topics analytically, hoping to highlight heretofore largely unforeseen and counter-intuitive aspects of the impact of legislative overrepresentation on intergovernmental fiscal relations. This discussion is complemented with preliminary evidence from Argentina, a federation exhibiting one of the most decentralized fiscal systems in the world and featuring severe imbalances in the territorial distribution of legislative and economic resources.