The effects of decentralization on special interest groups

Abstract

It is well established in the literature that the number of interest group organizations varies across countries and states, with economic freedom and other institutional factors playing important roles in economic growth and prosperity. At the same time, the literature offers little empirical evidence of the influence of institutions on interest group behavior. This study presents new evidence on the extent to which institutional structure, in particular state and local governmental fiscal decentralization, promotes or hinders interest group formation. Expenditure decentralization, more so than revenue decentralization, appears to constrain the number of industry-type groups while having little effect on social-type groups in US states. The results provide further evidence of the importance of institutional quality and structure across states and suggest important directions for future research.