THE POLITICAL ECONOMY OF FEDERALISM
Constitutional reforms in Western and Eastern Europe, Russia, and South Africa as well as political reforms towards fiscal decentralization in the United States and China are each examples of a search for a new federalist fiscal constitution. This survey examines two competing models of federalism -- Montesquieu's confederate republic and Madison's compound republic -- from the perspectives of economic efficiency and democratic rights and civic virtues. Federalist constitutions are defined along two dimensions: representation to the central legislature and assignment of economic activities to the central or local levels of government. When selecting representation and assignment, trade-offs between economic efficiency and valued democratic outcomes may be necessary. Stability of any federalist constitution will ultimately depend upon balancing these valued, but competing, constitutional outcomes.
Robert P. Inman, University of Pennsylvania
Daniel L. Rubinfeld, University of California, Berkeley
Forthcoming in D. Mueller (ed.) Developments in Public Choice, Cambridge University Press, 1995.