Index IntroductionEmpirical studiesStrengths and weaknessesConclusionBibliographyIntroductionA federal state is a state in which sovereignty is constitutionally divided between at least two territorial levels such that independent government units at each level have final authority in at least one political area. Although federalism is considered an effective political tool for strengthening democracy, good governance, citizen closeness and diversity management in practice, it is subject to much criticism. Very often, the system is accused of creating unnecessary government duplication and overlapping potentially contradictory policies. More specifically, it is often accused of being at the root of many collective action problems in the formulation and implementation of economic and other policy. A collective action problem occurs in a situation where a group would benefit from cooperation, but some members of that group have little incentive to contribute to the collective effort. This can occur in federalism when a central government is interested in pursuing long-term policies, improving macroeconomic indicators, achieving monetary stability, and avoiding crises to attract international investment and promote economic growth on a national scale. On the other hand, constituent units may be more likely to pursue short-term local goals that will make their voters happy and increase their chances of being re-elected. Furthermore, these collective action problems worsen with the degree of importance of the veto players. A veto player is an individual or collective actor whose consent is necessary for a change in the political status quo. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get Original Essay From a social perspective, the federal political system is an established and recognized governance that has been adopted by many developed and developing countries. Over half of the members of the Group of Twenty, including some states that comprise the largest proportions of the world's population, such as India, Brazil and the United States, are governed by federations. In recent years, a growing number of nonfederal states have proposed or adopted measures to decentralize functions within their regions to gain some of the competitive advantages of federalism. There is a vast range of statistical data regarding the impact of federalism on economic indicators and there are many sets of indicators that can be studied. There is also a survey on the perceived impact of federal governance which adds another set of data for the researcher. Therefore the study is scientifically relevant as it allows us to draw solid conclusions and address the inefficiency in the design of federal states today. The pursuit of conflicting economic policies between the central government and its constituent units is a collective action problem that can cause economic mismanagement. Economic mismanagement is observable through a multitude of indicators, such as a country exhibiting declining economic growth rates compared to similar countries, high rates of corruption, and inefficient policy implementations. In this essay I will discuss the main empirical findings on the causal relationship using three academic studies. To begin with, all three academic studies in this article recognize that there are numerous variations in the form of federal institutions across developed and developing countries. The differences in the degree of fiscal decentralization, the differences in the characteristics and the way in which thefederalism will influence the economic outcome of the country. Wibbels states that the political representation of subnational political units and the number and size of provinces can be expected to influence macroeconomic policies. Intergovernmental fiscal systems and hierarchical rules are among the most important building blocks of a more nuanced approach to varieties of federalism. Empirical studies The three studies that incorporate a wide range of perspectives and test the outcomes of federalism under different measures conclude a negative impact on the indicators economic and support the existence of a causal relationship with economic mismanagement. Wibbes analyzes the impact of federalism on 46 large federal and unitary countries between 1979 and 1995 by measuring units of national economic adjustment, level of volatility and frequency of crises. Its findings confirm predictions that macroeconomic performance and reform implementation would be negatively affected in the 10 countries where federalism operates. Based on a survey, Treisman observes that federal states were perceived as more corrupt by their populations. He suggested that the division of power that different levels of government entail appears to be a burden on business and attracts higher rates of venality and corruption. In the latest study, Rodden examines 43 OECD countries and notes that large and persistent aggregate deficits occur when subnational governments are simultaneously dependent on intergovernmental transfers and also free to borrow. On the other hand, he pointed out that long-term balanced budgets among subnational governments are found when a central government imposes borrowing restrictions or when subnational governments have extensive fiscal and lending autonomy. All three studies implicate fiscal decentralization as being more responsible for these negative economic outcomes. Decentralization in terms of political and administrative policies has also been studied, but the results are weaker and less conclusive. In fact, the more decentralized fiscal powers are, the stronger the causal relationship appears to be. Decentralization of spending, fiscal policies, or the ability to borrow appears to have the greatest negative impact on economic indicators. When subgovernments depend on transfers from the national government or when the center warns about their credit, the negative impact tends to be worse. This outcome is to be expected when the constituent units are dependent on the central government for funds and are confident that the credit liability will be borne unconditionally. It works as an incentive for sub-governments to be less careful in terms of spending and deficit levels. Wibbles argues that macroeconomic and fiscal imbalances are partly structurally determined by decentralized political and fiscal institutions that create incentives for subnational governments to avoid the political costs of fiscal adjustment. Rodden explained that when central governments are constitutionally or politically constrained they assume heavy co-financing obligations to subnational units. This implies that the central government takes responsibility for fiscal issues in lower-level governments. Treisman attributes corruption to subnational officials who decide how many bribes to extract from businesses so that both levels have the power to regulate. Finally, Wibbels, Rodden, and Treisman all agree on the dangers of adopting federal systems in developing countries. These countries have more difficulty borrowing as access to credit will be much more limited for subnational entities, generating inefficiencies. Furthermore, the sub-entities of developing countriesdevelopment commonly have poor institutional structure and a lack of human capital to implement policies. Finally, developing countries may be more exposed to corruption not because their populations are prone to it, but because balance control prevention mechanisms are not in place. These statements also apply to subgovernments in smaller developed countries that do not benefit from the economies of scale of larger states, have less access to credit, and perhaps more corruption because there are fewer budget controls. Strengths and Weaknesses Rodden's main strengths in his research are the three mathematical models he uses and adapts to capture the pure effect of federalism and validate or reject his hypothesis. Multiple hypotheses are tested and then validated, rejected, or adapted to arrive at the models. Rodden uses a robust multimodel approach and tests for the control variable in his results. Rodden combines in his approach the use of time series and cross-sectional analysis and also tries to compensate for the data difference and country disparity in the equations. It could be argued that the initially low comparability of the data is weak because there is high variability between the federal system characteristics studied in terms of size or centralization. Furthermore, the small amount of data for some series and the relatively short period of ten years analyzed can also be considered a weakness. Finally, the R² coefficient that evaluates the proportion of variance of the models is relatively low and the disparity of the results makes the conclusion more mixed. Treisman's study includes more context on what can influence corruption and cause mismanagement beyond federalism as the impact of federalism on corruption is only one of six factors analyzed by this study to explain corruption. This study has the merit of broadening the investigation and showing other factors that influence economic indicators, while demonstrating the same negative impact of federalism with a strong correlation. The study warns against giving too much importance to the outcome of endogenous variables and makes sure not to double count their effects. It is inclusive in terms of the diversity of geographies and countries covered and tests twelve hypotheses, for example corruption will be lower in federal states and corruption will be higher in federal states, so that the impact in both directions is considered. However, Treisman bases his findings on a perception survey and not on actual statistics on corruption. The study also focuses exclusively on corruption, which is not the only cause of mismanagement. Although the causal relationship between federalism and corruption is only one of six theories studied, it is carried out over a short period of time, so the study could be considered too superficial to draw conclusions about the specific impact of federalism. Wibbels focuses on macroeconomic aspects, the impacts and success of reforms in large countries, considering both federal and unitary governments. The strength of the study is to distinguish between the effects of macroeconomic reforms, fiscal and political federalism. Wibbels argues that theories often take the isolated case of the United States to demonstrate the non-negative impact of federalism on economic performance. He proceeds to compare the theoretical literature that supports or refutes this claim with his empirical findings. The study is robust due to the large time period studied and the comparability of the countries studied in terms of size because Wibbels restricts the analysis to large, developed nations with GDP rates above ten billion US dollars. In this