Economic policy‐making: advantages and disadvantages of the federal model

Abstract

In principle, key advantages of a democratic federation include (1) more efficient provision and production of public services tailored to the diversity of citizen and communal preferences; (2) better alignment of the costs and benefits of government for a diverse citizenry and thus more equity, insofar as citizens get what they pay for and pay for what they get; (3) better fits between public goods and their spatial characteristics, especially the variable economies of scale of different public goods; (4) increased competition, experimentation, and innovation in government; (5) greater responsiveness to citizen preferences, especially insofar as regional and local governments have the authority and ability to respond to those preferences; (6) more transparent and close‐to‐the‐citizen accountability in policy‐making; and (7) more sensitivity to subnational regional concerns, including the power of constituent governments to provide for primarily by considerations relating to liberty, the promotion of active citizenship, and democracy. In multination states, federal arrangements will also be necessitated by considerations of equity and the right to self‐determination. Federal constitutions nevertheless tend to make it mation; there are significant differences between liberal individualist and multi‐communal federations; and many factors other than federalism affect economic policy‐making. Consequently, federations include both the world's richest and the world's poorest nations.