The economic effects of federalism and decentralization : a cross-country assessment

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 pricipal 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 im pact on the outcome variables in different degrees. This study adds to our knowledge on the transmission mechanisms of federalism and decentralization. - Federalism ; decentralization ; fiscal federalism ; economic effects of constitutions ; constitutional economics