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

27 Pages Posted: 4 May 2017 Last revised: 14 May 2017

See all articles by Jerg Gutmann

Jerg Gutmann

University of Hamburg - Institute of Law and Economics; CESifo (Center for Economic Studies and Ifo Institute)

Stefan Voigt

University of Hamburg - Institute of Law & Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: May 3, 2017

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

JEL Classification: H1, H3, H5, H8

Suggested Citation

Gutmann, Jerg and Voigt, Stefan, Why Adopt a Federal Constitution? And Why Decentralize? – Determinants Based on a New Dataset (May 3, 2017). Available at SSRN: https://ssrn.com/abstract=2962625 or http://dx.doi.org/10.2139/ssrn.2962625

Jerg Gutmann

University of Hamburg - Institute of Law and Economics ( email )

Johnsallee 35
Hamburg, 20148
Germany

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Stefan Voigt (Contact Author)

University of Hamburg - Institute of Law & Economics ( email )

Johnsallee 35
Hamburg, 20148
Germany
+49-40-428385782 (Phone)
+49-40-428386794 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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