Public Choice in a Federal System

Except for the mobility constraints imposed on political decisions of lower-level governments, public choice analysts assume that the working of the political process under federalism remains the same at all levels of governments as under unitary state. This paper argues that one dimension of the political process in a federalist framework lends itself to specific economic analysis, namely the fact that, once constitutional limits break down and functions overlap, two or more levels of government compete for the same voters in the supply of services in a given territory. Viewing votes as inputs in the production of political outputs, the conventional analysis of allocation under common-property rule should shed light on the outcome of this process. The analysis shows that it is in the interest of both suppliers to seek to gain the votes in being first to implement programs. There are thus two forces operating in a typical federalist system, an expansionist one rooted in the political dynamics analysed here, and a restrictionist one based on the mobility of resources among decentralized entities. This may explain why the empirical record is rather mixed on the contribution of federalism to containing government growth. The consequences of this process are derived and possible avenues for improvement are explored.