The Distortion Gap: Policymaking under Federalism and Interest Group Capture

Abstract

Which should be preferred in a federal system, state- or national-level policymaking? Though theory suggests that more voters are satisfied by local control, we identify new conditions under which national policymaking is preferred based solely on the distorting influence of interest groups. Even when interest groups capture state policymaking at the same rate as states' national representatives, a “distortion gap” exists between the two regimes. We find that national policymaking provides more aggregate welfare when voters widely disagree with moderately prevalent strong interest groups, refining Madison's prescription for national policymaking to counter local factions. We show that other justifications for national policymaking (such as avoiding spillovers and overcoming interest groups' easier capture of state than national politics) are not necessary to prefer national policies.