Endogenous Policy Decentralization: Testing the Central Tenet of Economic Federalism

Strumpf, Koleman S.; Oberholzer-Gee, Felix

doi:10.2139/ssrn.151009

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Endogenous Policy Decentralization: Testing the Central Tenet of Economic Federalism

43 Pages Posted: 20 Feb 1999

See all articles by Koleman S. Strumpf

Koleman S. Strumpf

Wake Forest University, Department of Economics

Felix Oberholzer-Gee

Harvard Business School, Strategy Unit

There are 2 versions of this paper

Date Written: February 15, 1999

Abstract

The economic theory of federalism is largely built around the premise that more heterogeneous preferences result in more decentralized policy-making. Despite its prominence and importance, this central tenet of economic federalism has never been empirically evaluated. This paper presents the first formal test of the link between preference heterogeneity and endogenous policy decentralization using liquor control in the United States over the period 1934 to 1970 as our case study. The results are reassuring: states with minority groups that feel more strongly about liquor are more likely to decentralize liquor control and allow for local government decision-making.

JEL Classification: D7, H7, N4

Suggested Citation: Suggested Citation

Strumpf, Koleman S. and Oberholzer-Gee, Felix, Endogenous Policy Decentralization: Testing the Central Tenet of Economic Federalism (February 15, 1999). Available at SSRN: https://ssrn.com/abstract=151009 or http://dx.doi.org/10.2139/ssrn.151009