Federalism and the politics of macroeconomic policy and performance
Using economic data for the period between 1979 and 1995 for forty-six large federal and unitary developing nations, I analyze the impact of political federalism in the developing world on a number of measures of national economic adjustment, volatility, and crisis. The findings suggest that federalism in the ten nations where it operates has, as theoretically predicted, a negative effect on macroeconomic performance and reform. I argue that the macroeconomic and fiscal imbalances experienced by these federal nations are, in part, structurally determined by their devolved political and fiscal institutions that create incentives for subnational governments to avoid the political costs of fiscal adjustment.
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