What is the impact of federalism on the size of government? On the one hand, various externalities and unexploited economies of scale caused by federalist institutions favour a larger size of government. On the other hand, some authors argue that federalism represents an institutional barrier for policy makers eventually restricting their policy discretion to deviate from voter preferences. Consequently, the net effect of federalism is open from a theoretical point of view. This paper evaluates the different aspects of federalism empirically for Swiss cantons with a panel of annual data from 1980 to 1998. The results indicate that federalism in Switzerland rather favours a smaller size of government.
Journal for Economic Policy is published on behalf of the Institute for Economic Policy at the University of Cologne. The Journal is open to publications from all areas of economics. Articles regarding current questions of German, European or international economic policy are preferred. At the center of each issue is the economic policy forum. It deals with topics, which are controversially discussed among the general public.