Hostname: page-component-78c5997874-fbnjt Total loading time: 0 Render date: 2024-11-19T04:12:21.943Z Has data issue: false hasContentIssue false
  • English
  • Français

Laboratory federalism and intergovernmental grants

Published online by Cambridge University Press:  28 December 2017

GIAMPAOLO GARZARELLI Open the ORCID record for GIAMPAOLO GARZARELLI [Opens in a new window]  and
LYNDAL KEETON Open the ORCID record for LYNDAL KEETON [Opens in a new window]
GIAMPAOLO GARZARELLI*
Affiliation:
DiSSE, Sapienza – Università di Roma, Rome, Italy IPEG, SEBS, University of the Witwatersrand, Johannesburg, South Africa
LYNDAL KEETON*
Affiliation:
Institutions and Political Economy Group & School of Economic and Business Sciences, University of the Witwatersrand, Johannesburg, South Africa
*
*Email: [email protected]
**Email: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

This article contributes to an institutional economics analysis of the public economy by answering the following question: what is the role of intergovernmental grants in laboratory federalism? In line with factual evidence, the fiscal federalism literature on policy experimentation hints that grants can be employed to stimulate policy innovation through trial and error learning. Yet it lacks a theory of policy experimentation through grants, meaning that, in effect, we lack a fiscal theory of laboratory federalism. In the proposed approach, an intergovernmental grant is likened to a fiscal institution for political compromise between levels of government that frames policy experimentation options and constraints. At the same time, since policy solutions are not always easy to find or to implement, policy experimentation requires some degree of flexibility. Thus, the article shows that the extent of experimentation induced by a grant is influenced (or, more fashionably, nudged) by the conditionality attached to the grant. It argues, moreover, that if a grantor would like to induce more (less) experimentation, then, all other things equal, a grant with fewer (more) conditions attached should fare better than a grant with more (fewer) conditions attached.

Type
Research Article
Information
Journal of Institutional Economics , Volume 14 , Issue 5 , October 2018 , pp. 949 - 974
Copyright
Copyright © Millennium Economics Ltd 2017 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Alm, J. and Shreffin, S. M. (2017), ‘Using Behavioral Economics in Public Economics’, Public Finance Review, 45 (1): 4–9.Google Scholar
Ayres, I. and Gertner, R. (1989), ‘Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules’, Yale Law Journal, 99 (1): 88–130.Google Scholar
Bailey, S. J. and Connolly, S. (1998), ‘The Flypaper Effect: Identifying Areas for Further Research’, Public Choice, 95 (3/4): 335–61.Google Scholar
Bates, R. (2014), ‘The New Institutionalism’, in Galiani, S. and Sened, I. (eds), Institutions, Property Rights, and Economic Growth: The Legacy of Douglass North, New York: Cambridge University Press, pp. 50–65.Google Scholar
Bednar, J. (2011), ‘Nudging Federalism towards Productive Experimentation’, Regional and Federal Studies, 21 (4/5): 503–21.Google Scholar
Besfamille, M. and Lockwood, B. (2008), ‘Bailouts in Federations: Is a Hard Budget Constraint Always Best?’ International Economic Review, 49 (2): 577–93.Google Scholar
Bookstaber, R. and Langsam, J. (1985), ‘On the Optimality of Coarse Behavior Rules’, Journal of Theoretical Biology, 116 (2): 161–93.Google Scholar
Brennan, G. (2008), ‘Psychological Dimensions in Voter Choice’, Public Choice, 137 (3/4): 475–89.Google Scholar
Brennan, G. and Pincus, J. (1990), ‘An Implicit Contract Theory of Intergovernmental Grants’, Publius, 29 (4): 129–44.Google Scholar
Breton, A. (1987), ‘Towards a Theory of Competitive Federalism’, European Journal of Political Economy, 3 (1–2): 263–329.Google Scholar
Breton, A. (1996), Competitive Governments: An Economic Theory of Politics and Public Finance, New York: Cambridge University Press.Google Scholar
Buchanan, J. M. (1968), The Demand and Supply of Public Goods, Chicago: Rand McNally.Google Scholar
Buchanan, J. M. (1990), ‘The Domain of Constitutional Economics’, Constitutional Political Economy, 1 (1): 1–18.Google Scholar
Buchanan, J. M. (1995), ‘Federalism as an Ideal Political Order and an Objective for Constitutional Reform’, Publius, 25 (2): 19–27.Google Scholar
Bulman-Pozen, J. and Gerken, H. K. (2009), ‘Uncooperative Federalism’, Yale Law Journal, 118 (7): 1256–310.Google Scholar
Callander, S. (2011), ‘Searching and Learning by Trial and Error’, American Economic Review, 101 (6): 2277–308.Google Scholar
Callander, S. and Harstad, B. (2015), ‘Experimentation in Federal Systems’, Quarterly Journal of Economics, 130 (2): 951–1002.Google Scholar
Carlsen, F. (1995), ‘Why is Central Regulation of Local Spending Decisions so Pervasive? Evidence from a Case Study’, Public Budgeting and Finance, 15 (1): 43–57.Google Scholar
CBO – Congressional Budget Office of the Congress of the United States (2013), Federal Grants to State and Local Governments (March).Google Scholar
Duquette, C. M., Mixon, F. G. Jr. and Cebula, R. J. (2017), ‘Swing States, the Winner-take-all Electoral College, and Fiscal Federalism’, Atlantic Economic Journal, 45 (1): 45–57.Google Scholar
Fedeli, S., Forte, F., and Leonida, L. (2014), ‘The Law of Survival of the Political Class: An Analysis of the Italian Parliament (1946–2013)’, European Journal of Political Economy, 35: 102–21.Google Scholar
Fudenberg, D. and Levine, D. K. (1998), The Theory of Learning in Games, Cambridge, MA: MIT Press.Google Scholar
Galle, B. and Leahy, J. (2009), ‘Laboratories of Democracy? Policy Innovation in Decentralized Governments’, Emory Law Journal, 58 (6): 1333–400.Google Scholar
Garzarelli, G. (2006), ‘Cognition, Incentives, and Public Governance: Laboratory Federalism from the Organizational Viewpoint’, Public Finance Review, 34 (3): 235–57.Google Scholar
Gigerenzer, G. (2015), ‘On the Supposed Evidence for Libertarian Paternalism’, Review of Philosophy and Psychology, 6 (3): 361–83.Google Scholar
Gigerenzer, G. and Brighton, H. (2009), ‘Homo Heuristicus: Why Biased Minds Make Better Inferences’, Topics in Cognitive Science, 1 (1): 107–43.Google Scholar
Gigerenzer, G. and Selten, R. (eds) (2001), Bounded Rationality: The Adaptive Toolbox, Cambridge, MA: MIT Press.Google Scholar
Grossman, P. J. (1989), ‘Fiscal Decentralization and Government Size: An Extension’, Public Choice, 62 (1): 63–9.Google Scholar
Grossman, P. J. and West, E. G. (1994), ‘Federalism and the Growth of Government Revisited’, Public Choice, 79 (1/2): 19–32.Google Scholar
Hayek, Friedrich A. von (1948), Individualism and Economic Order, Chicago: Chicago University Press.Google Scholar
Henderson, P. D. (1977), ‘Two British Errors: Their Probable Size and Some Possible Lessons’, Oxford Economic Papers (NS), 29 (2): 159–205.Google Scholar
Herrnstein, R. (1997), The Matching Law: Papers in Psychology and Economics (edited by Rachlin, H. and Laibson, D. I.), Cambridge, MA: Harvard University Press.Google Scholar
Hines, J. R. Jr. and Thaler, R. H. (1995), ‘Anomalies: The Flypaper Effect’, Journal of Economic Perspectives, 9 (4): 217–26.Google Scholar
Hofbauer, J. and Sigmund, K. (1998), Evolutionary Games and Population Dynamics, New York: Cambridge University Press.Google Scholar
Inman, R. P. (2009), ‘Flypaper Effect’, in Durlauf, S. N. and Blume, L. E. (eds), The New Palgrave Dictionary of Economics, online edition: Palgrave Macmillan.Google Scholar
Keating, M. (2005), ‘Policy Convergence and Divergence in Scotland under Devolution’, Regional Studies 39 (4): 453–63.Google Scholar
Kleiman, M. A. R. and Ziskind, J. (2014), ‘Lawful Access to Cannabis: Gains, Losses and Design Criteria’, in Ending the Drug Wars: Report of the LSE Expert Group on the Economics of Drug Policy, pp. 77–82.Google Scholar
Knight, B. (2002), ‘Endogenous Federal Grants and Crowd-out of State Spending: Theory and Evidence from the Federal Highway Program’, American Economic Review, 92 (1): 71–92.Google Scholar
Kollman, K., Miller, J. H., and Page, S. E. (2000), ‘Decentralization and the Search for Policy Solutions’, Journal of Law, Economics, & Organization 16 (1): 102–28.Google Scholar
Langlois, R. N. and Csontos, L. (1993), ‘Optimization, Rule-following, and the Methodology of Situational Analysis’, in Mäki, U., Gustafsson, B. and Knudsen, C. (eds), Rationality, Institutions and Economic Methodology, London: Routledge, pp. 112–32.Google Scholar
Langlois, R. N. and Garzarelli, G. (2008), ‘Of Hackers and Hairdressers: Modularity and the Organizational Economics of Open-source Collaboration’, Industry and Innovation, 15 (2): 125–43.Google Scholar
Lee, D. R. (1985), ‘Reverse Revenue Sharing: A Modest Proposal’, Public Choice, 45 (3): 279–89.Google Scholar
Levy, S. (2006), Progress Against Poverty: Sustaining Mexico's Progresa-Oportunidades Program, Washington, DC: Brookings Institution.Google Scholar
Lindblom, C. E. (1959), ‘The Science of “Muddling Through”’, Public Administration Review, 19 (2): 79–88.Google Scholar
Litschig, S. (2012), ‘Are Rules-based Government Programs Shielded from Special-interest politics? Evidence from Revenue-sharing Transfers in Brazil’, Journal of Public Economics, 96 (11–2): 1047–60.Google Scholar
Madison, K. M. (2014), ‘Building a Better Laboratory: The Federal Role in Promoting Health System Experimentation’, Pepperdine Law Review, 41 (4): 765–816.Google Scholar
McCubbins, M. D., Noll, R. G. and Weingast, B. R. (1997), ‘Administrative Procedures as Instruments of Political Control’, Journal of Law, Economics, & Organization, 3 (2): 243–77.Google Scholar
Minkler, A. P. (1993), ‘Knowledge in Internal Organization’, Journal of Economic Behavior and Organization, 21 (1): 17–30.Google Scholar
Mixon, F. G. Jr. and Ladner, J. A. (1998), ‘Sending Federal Fiscal Power Back to the States: Federal Block Grants and the Value of State Legislative Offices’, Journal of Public Finance and Public Choice, 16 (1): 27–41.Google Scholar
NASBO – National Association of State Budget Officers (2016), State Expenditure Report: Examining Fiscal 2014–2016 State Spending.Google Scholar
Nicholson-Crotty, S. (2015), Governors, Grants, and Elections: Fiscal Federalism in the American States, Baltimore: Johns Hopkins University Press.Google Scholar
North, D. C., Wallis, J. J., and Weingast, B. R. (2009), Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History, New York: Cambridge University Press.Google Scholar
Oates, W. E. (1972), Fiscal Federalism, New York: Harcourt Brace Jovanovich.Google Scholar
Oates, W. E. (1999), ‘An Essay on Fiscal Federalism’, Journal of Economic Literature, 37 (3):1120–49.Google Scholar
Oates, W. E. (2008), ‘On the Evolution of Fiscal Institutions: Theory and Evidence’, National Tax Journal, 61 (2): 313–34.Google Scholar
OMB – Office of Management and Budget (2017), Budget of the US Government, Washington, DC: US GPO.Google Scholar
Osborne, D. and Gaebler, T. (1992), Reinventing Government: How the Entrepreneurial Spirit is Transforming the Public Sector, New York: Addison-Wesley.Google Scholar
Ostrom, E. (1998), ‘A Behavioral Approach to the Rational Choice Theory of Collective Action: Presidential Address, American Political Science Association, 1997’, American Political Science Review, 92 (1): 1–22.Google Scholar
Roemer, J. E. and Silvestre, J. (2002), ‘The “Flypaper Effect” is Not an Anomaly’, Journal of Public Economic Theory, 4 (1): 1–17.Google Scholar
Rose-Ackerman, S. (1980), ‘Risk Taking and Reelection: Does Federalism Promote Innovation?’ Journal of Legal Studies, 9 (3): 593–616.Google Scholar
Salmon, P. (1987), ‘Decentralization as an Incentive Scheme’, Oxford Review of Economic Policy, 3 (2): 24–43.Google Scholar
Schubert, C. (2017), ‘Exploring the (Behavioural) Political Economy of Nudging’, Journal of Institutional Economics, 13 (3): 499–522.Google Scholar
Simon, H. A. (1990), ‘Invariants of Human Behaviour’, Annual Review of Psychology, 41: 1–19.Google Scholar
Sims, C. R., Neth, H., Jacobs, R. A., and Gray, W. D. (2013), ‘Melioration as Rational Choice: Sequential Decision Making in Uncertain Environments’, Psychological Review, 120 (1): 139–54.Google Scholar
Sobel, R. S. and Crowley, G. R. (2014), “Do Intergovernmental Grants Create Ratchets in State and Local Taxes?’ Public Choice, 158 (1–2): 167–87.Google Scholar
Stigler, G. J. (1957), ‘The Tenable Range of Functions of Local Government’, in US Congress Joint Economic Committee, Federal Expenditure Policy for Economic Growth and Stability, Washington, DC: US GPO, pp. 213–9.Google Scholar
Strumpf, K. S. (2002), ‘Does Government Decentralization Increase Policy Innovation?’ Journal of Public Economic Theory, 4 (2): 207–41.Google Scholar
Sugden, R. (2005), The Economics of Rights, Cooperation and Welfare (second edition), New York: Palgrave Macmillan.Google Scholar
Sugden, R. (2013), ‘The Behavioural Economist and the Social Planner: To Whom Should Behavioural Welfare Economics Be Addressed?’ Inquiry, 56 (5): 519–38.Google Scholar
Sunstein, C. R. (2017), ‘Nudges that Fail’, Behavioural Public Policy, 1 (1): 4–25.Google Scholar
Thaler, R. H. and Sunstein, C. R. (2009), Nudge, London: Penguin Books.Google Scholar
Turgot, A.-R.-J. [1775](1987), Memorandum on Local Government, in Baker, K. M. (Ed.), The Old Regime and the French Revolution, Chicago: University of Chicago Press, pp. 97–123. Partial translation of Mémoire sur les municipalités.Google Scholar
Van Wiggeren, M. L. (1997), ‘Experimenting with Block Grants and Temporary Assistance: The Attempt to Transform Welfare by Altering Federal-State Relations and Recipients' Due Process Rights’, Emory Law Journal, 46 (4): 1327–62.Google Scholar
Volden, C. (1999), ‘Asymmetric Effects of Intergovernmental Grants: Analysis and Implications for US Welfare Policy’, Publius, 29 (3): 51–73.Google Scholar
Webb, S. (1911), Grants in Aid: A Criticism and a Proposal, London: Longmans, Green.Google Scholar
Weingast, B. R. (2009), ‘Second Generation Fiscal Federalism: The Implications of Fiscal Incentives’, Journal of Urban Economics, 65 (3): 279–93.Google Scholar
Weissert, C. S. and Scheller, D. (2008), ‘Learning from the States? Federalism and National Health Policy’, Public Administration Review, 68 (Supplement): S162–S174.Google Scholar
Wildasin, D. E. (2004), ‘The Institutions of Federalism: Toward an Analytical Framework’, National Tax Journal, 57 (2, Part 1): 247–72.Google Scholar
Williamson, O. E. (2005), ‘The Economics of Governance’, American Economic Review, Papers and Proceedings, 95 (2): 1–18.Google Scholar
Xu, C. (2011), ‘The Fundamental Institutions of China's Reforms and Development’, Journal of Economic Literature, 49 (4): 1076–151.Google Scholar
Zedlewski, S. R., Holcomb, P. A., and Duke, A.-E. (1998), Cash Assistance in Transition: The Story of 13 States, Occasional Paper No. 16, Washington, DC: Urban Institute.Google Scholar