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Why Adopt a Federal Constitution? And why Decentralize? – Determinants Based on a New Dataset

Jerg Gutmann () and Stefan Voigt ()

No 6, ILE Working Paper Series from University of Hamburg, Institute of Law and Economics

Abstract: Measurement of both federalism and decentralization has been contentious. We introduce three new indicators reflecting important aspects of both federalism and decentralization. The three new indicators are the result of principal component analysis. When we try to identify their main determinants, it turns out that the only explanatory variable that is significantly correlated with all three is the geographical size of a country. Other variables, such as the size of the population, linguistic fractionalization, or the level of democracy, only help to explain variation of one component. We interpret this as evidence that it is important to distinguish between federalism and decentralization, if one is interested in ascertaining their causes and consequences. We further test for the first time the effect of spatial inequality in a country on the adoption of federalism or decentralization and we find that it correlates significantly with constitutional federalism. This suggests that economically heterogeneous states are more likely to adopt a federal constitution.

Keywords: Federalism; Fiscal Federalism; Decentralization; Geography; Institutions; Endogenous Constitutions (search for similar items in EconPapers)
JEL-codes: H1 H3 H5 H8 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ure
Date: 2017
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