On the Incentives to Experiment in Federations

24 Pages Posted: 26 Nov 2005

See all articles by Christos Kotsogiannis

Christos Kotsogiannis

University of Exeter

Robert Schwager

Center for European Economic Research (ZEW); University of Magdeburg

Date Written: November 2005

Abstract

Conventional wisdom has it that policy innovation is better promoted in a federal rather than in a unitary system. Recent research, however, has provided theoretical evidence to the contrary: a multi-jurisdictional system is characterized - due to the existence of a horizontal information externality - by under-provision of policy innovation. This paper presents a simple model that introduces political competition for federal office. Under such competition political actors use the innovative policies in order to signal ability to the electorate. In the equilibrium analyzed policy innovation may occur more frequently than in a unitary system. It is thus shown that, once electoral motives are accounted for, the conventional wisdom is likely to be a valid proposition.

Keywords: fiscal federalism, policy innovation, policy experimentation

JEL Classification: H77, R59

Suggested Citation

Kotsogiannis, Christos and Schwager, Robert, On the Incentives to Experiment in Federations (November 2005). CESifo Working Paper Series No. 1585. Available at SSRN: https://ssrn.com/abstract=854907

Christos Kotsogiannis

University of Exeter ( email )

Exeter EX4 4QX, Devon
United Kingdom

Robert Schwager (Contact Author)

Center for European Economic Research (ZEW) ( email )

P.O. Box 10 34 43
L 7,1 D-68161 Mannheim
Germany
00 49 621 1235160 (Phone)
00 49 621 1235215 (Fax)

University of Magdeburg

Universitätspl. 2
PSF 4120
Magdeburg, D-39106
Germany

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