The Politics of Federalism: Self-Interest or Safeguards? Evidence from Congressional Control of State Taxation

Abstract:     
We present for the first time in the literature a quantitative analysis of the efficacy of the "political safeguards of federalism." We also test the popular theory that congressional control of state authority to tax maximizes national welfare. Both analyses rely on a hand-collected data set of every federal statute to date affecting state power to tax.

Overall, our data suggest that federal decisions to curtail state autonomy are strongly influenced by congressional self-interest. Conditional on enactment, statutes affecting state taxing power are more likely to reduce state authority when a concentrated special interest group stands to benefit, and also when the reduction would reduce competition between states and Congress.

While this outcome certainly does not resolve the debate over judicial enforcement of federalism, it should significantly advance that debate. At a minimum, we show that state power to influence Congress is not absolute, and state influence in fact fails under conditions similar to those in which critics of the safeguards theory have predicted that state influence would fail. Additionally, we argue that our results cast significant doubt on recent calls to give control of state taxing authority solely to Congress.

Number of Pages in PDF File: 25

Keywords: federalism, political safeguards of federalism, dormant commerce clause, state and local taxation, public choice, tax-base competition, vertical competition, commandeering, unfunded mandates

JEL Classification: H11, H77, K34

working papers series