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Title:On the incentives to experiment in federations PDF Logo
Authors:Kotsogiannis, Christos
Schwager, Robert
Issue Date:2005
Series/Report no.:CESifo working papers 1585
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.
Subjects:fiscal federalism
policy innovation
policy experimentation
JEL:H77
R59
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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