Does Federalism Foster Happiness? Reviewing Political Decentralization and Citizens’ Happiness

Abstract

Federalism settles decision-making power to state levels close to its citizens. This decentralization of power should enable political output to be as responsive and corresponding as possible to the diverse demands and needs of the society – resulting in politically happy citizens. As such, federalism and decentralization may represent a polity of better governance. However, federalism can also have negative effects, such as, high costs of consent, more corruption or even less accountability since citizens do not have not enough resources to monitor all governmental levels. Both, the pro- nor the contra-argumentation in federal theory provide good reasons to be decisive. Yet, empirics show mainly a positive relationship between federalism/decentralization and happiness.

 

 Introduction

The theory on happiness in the sphere of politics begins in the 1970s and 1980s (Easterlin 1974, Scitovsky 1976, Morawetz et al. 1977, Ng 1978, Martin/Lichter 1983, Headey/Krause 1988) and was driven by economists and the ordinal utility perspective. Federal studies added a new component to the subject – the role of states and power. Governance was identified as a key factor in determining the wellbeing of its citizens, especially through formal institutions, social resources and public policies (Kim/Kim 2012).

Several scholars delivered strong, but ambivalent reasoning when it comes to the potential federal effect on happiness/subjective wellbeing and its direction. While the pro-federal side highlights i.a. the argument of proximity of decision-making, the sceptical perspective stresses several potential deficits resulting from federal structures (e.g. gridlock, corruption, pork-barrel-politics). Plausibility and logic are inherent in both ways of thinking, making the association even more puzzling and stimulating. The two theoretical perspectives and standpoints are reviewed in the next sections.

 

Federalism Makes Citizens Happy

Federal theory strengthening the federalism-happiness association builds its argumentation on the key concepts of voice, closeness and best practice.

Voice as one major element in federalism emphasises preference heterogeneity and takes up various roles in this regard (cf. Hirschman 1970, Schmidt 1995, Escobar-Lemmon 2001). Voice in the form of political involvement and participation of citizens in sub-national units holding decision-making power. In this regard, the reasoning presumes that federalism stimulates the political activity of citizens. Because decisions are made in proximity of the citizens concerned, their incentive to be part of the process and to integrate their opinion into the outcome is higher. This stimulus, in turn, supports the incentive to inform oneself and the active and well-informed citizen, hence, improves the quality and sophistication of political decisions (cf. Elazar 1993, Härtel 2012). Coming from competitive federalism theory, foot voting is another mean of voice to improve the political environment and politics overall. When citizens notice that other constituencies do a better job, they either try to push their own officials towards more matching policies or simply move to the constituency they see performing better: “This [federal] competition may lead to a reduction of waste, fraud, and abuse, and to more efficient representation of community interests, lest the community lose residents, businesses and part of its tax base to competitors” (Volden 2002:352).

Closeness is seen in the higher familiarity of sub-state decision-makers with local and regional circumstances increasing the chance for issue- and citizens-oriented solutions. Thereby, sub-state officials’ sensitivity to local conditions and needs is key. The striking distance to communal problems and as such high degrees of closeness to citizens make it possible to create pertinent political alternatives to centralized programs. Moreover, this closeness can often lead to more pragmatic and simplified solutions to central complex bureaucratic procedures. The involvement of a high number of different actors from different levels of government and non-governmental institutions in policy implementation may additionally lead to increased legitimacy and may mirror familiarity of dealing with multiple normative levels.

Moreover, federalism is postulated to be a learning system with alternatives in regional jurisdictions, where decisions with local or regional character can be more easily changed and adjusted than in centralized countries enabling laboratory federalism and a competition over best politics and practice (Tarr 2001, Sturm 2018). Those regional jurisdictions can function as sandboxes to test new policy solutions giving failing or succeeding return signals. The federal structure also allows individual regional progress before all subunits as a whole endorse it – making implementation at multiple speeds possible. Fukuyama (2005) argues that in developed countries decentralisation actually improves statehood and enables the state to be better organised, more efficient and more open to societal, economic and administrative experimentation.

Federalism, thus, means “smaller, directly accountable, self-governing political units, more responsive to the individual citizen, and from the desire to give expression to primary group attachments” (Watts 2007:1 et seq., cf. Lookwood 2005, Yushkov 2015). In other words, politics and policies are closer to the citizen and may be more target effective and efficient. If so, the argument in theory states that citizens in federal systems are more satisfied and happier with politics, express more trust in political institutions and show high approval towards the political system.

 

Federalism Makes Citizens Unhappy 

Federal governance involves drawbacks and downsides. Riker (1969) sees federalism as non-equilibrium and because of the permanent federal bargaining, as a generally unstable form of governance. Furthermore, scholars criticize a federal design being a political wastage of multiplying parliaments and politicians or the constraints it imposes on national governments in implementing their political projects (cf. Wachendorfer-Schmidt 2000). In this context, the high costs of consent play a major role. In order to reach a decision, the costs are risen by the number of actors involved favoring unitarist settings (cf. Buchanan and Tullock 1965). In worst-case scenarios, a federal configuration more likely leads to gridlocks, scattered regionalism and ungovernability than unitarism. Thus, federations’ citizens may more likely be frustrated and less satisfied with politics than citizens in centralized states.

Additionally, the argument on the linkage between “decentralization and enhanced accountability require[s] hefty assumptions about the quality of the local democratic process and the information available to voters” (Rodden 2003:701). To some extent, this is also true to preferences and concrete acting of voters and politicians, because decentralization also could to lead to «state-capture» by local interest groups and increased corruption (Rodden/Rose-Ackerman 1997, Bardhan/Mookherjee 2000, Treisman 2000). The alleged advantage of federalism in responsiveness and accountability may be in real world inexistent or even reversed. Rodden (2006:363) explains that especially in terms of shared rule, federalism can create a situation in which competences are unclear and contested. Rodden (2004: 494) also claims that via “adding layers of government and expanding areas of shared responsibility, it might facilitate blame shifting or credit claiming, thus reducing accountability.” For the voter a federal constellation, hence, may be confusing and electoral punishment might not take place or hit the wrong officials. Banting (1987) backs the notion that a federal structure can be non-transparent and adds the feature of reform-resistance.

Moreover, citizens themselves hold only limited resources to invest in monitoring state governance. It is plausible that multiple levels of government prevent citizens from thorough oversight over government activities and that instead a single central government might enable voters a proper governmental check (Franzese 2001). In this connection, pro-federal arguments make the assumption of engaged and active voter-consumer in federations, but what happens in a federal order without such ideal citizens? Perrson/Tabellini (2000) argue that uninformed or indifferent citizens allow for considerable agency slack. Local officials then may not only exert low effort, but also even exploit chances for theft and other forms of corruption – and because federalism is open to ongoing renegotiation it invites a variety of opportunistic behaviors in those. In addition, citizens may even lose incentives “to demand good government or closely monitor government behavior” (Rodden 2019:2), when the government funds its activities through rents from natural resources (Ross 2004, Van der Ploeg 2011), foreign aid (Moore 1998; Morrison 2009) tariffs, or other forms of «taxless finance» like bank charters or land sales (Wallis 2005). In all, federalism holds obstacles impeding better governance and, thus, happier citizens. Consequently, it is also possible that more citizens that are discontented are found in federations than in centralized countries.

 

State of Research

Overall, the literature suggests that the impact of decentralization on satisfaction is an empirical question since both state orders do hold theoretical pro and con arguments. Early qualitative and quantitative case studies show that citizens are more satisfied with and place greater confidence in local and state rather than with/in central governments (Farnsworth 1999, Kincaid/Cole 2000 et 2010). For Switzerland Frey/Stutzer (2000) identify that local autonomy increases happiness.

Large-N cross-section analyses find that inter alia fiscal decentralization in form of “greater revenue and spending decentralization increase well-being, while a beneficial influence of political autonomy emerges only through its interplay with general government spending.” (Bjørnskov/Drehe/Fischer 2008:147), Voigt/Blume (2012) detect that citizens in federal countries are happier than in unitarist while Malah-Kuete/Mignamissi/Kuete (2022: 604) find that “federalism and local autonomy improve the happiness of the population”.

Rather ambivalent results from cross-country and multi-level analyses in this matter show that i.a. federalism in the form of political decentralization seems to support democracy, but fiscal decentralization does not (Lane/Errson 2005). Furthermore, the influence of political decentralization on citizens’ satisfaction with the state of the education system and of health services varies on dimensions of self-rule and shared rule (Diaz-Serrano/Rodríguez-Pose 2012). In the case of Indonesia, fiscal decentralization is significantly associated with citizen happiness, while political decentralization is not (take note that political decentralization is measured by the presence of an elected major) (Sujarwoto/Tampubolon 2015). A time-series-cross-section analysis shows that the effect of political decentralization on «well-being» is moderated by quality of national governance (Rodríguez-Pose/Tselios 2019).

Table 1: Federalism/Decentralization affecting Happiness

 

Table 2: Research Related Studies

 

As seen in the overview of Tables 1 and 2, all those studies show either a positive federal influence on happiness, an indecisive one or no effect. Interestingly, no study demonstrated a purely negative connection between federalism and happiness.

However, several studies are concerned with single cases and either omit potential counter-evidence and/or investigate only a subset of federal systems. In regard of samples, most examinations use western countries only, which is due to data availability, but may lead to the problem of selection bias. Without doubt, previous works contributed crucially to our understanding. Yet, theory gives plausible concern that the relationship is not as one-sided as empirics suggest, especially when including federations outside of Europe and North America: “The […] discussion makes it obvious that the expected net effects of federalism on governance indicators are far from crystal clear.” (Voigt/Blume 2012:235).

 

Conclusion

Normatively, a good state is a state that is able to maximize the political satisfaction of its citizens. Certainly, on first sight a federal democracy may seem as a viable option to fulfill these purposes. Yet, political thought provides reason that the relationship may not be as clear as it might look. Beside the positive narrative listing all the federal advantages, there is also crucial theoretical concern stating several potential deficits on the federalism-happiness linkage. A unitarist democracy holds benefits that might lead to outperforming a federation.

Empirics give us a quiet uniform answer: Federalism/Decentralization makes people happier. Surprisingly no negative association was found. The reason may lay in the circumstance that those works rely on samples dominated by industrialized, western countries. As such, the paper makes note that a major difficulty for sufficient empirical work is data availability. In order to achieve a robust finding survey samples must include a higher number of countries and continuous time spans.

Yet, the question remains open: Does federalism and decentralization produce happiness also when non-western federations and decentralized countries are included in the samples in greater numbers? Is federalism the state form of better governance? However, there are more questions to add: Is federal happiness an interaction effect with a certain degree of (direct) democracy? Is the size of the state apparatus influential? Is there a difference in citizens’ political satisfaction levels in federal countries with more sub-state units to ones with less?

 

References

Banting, Keith. 1987. ‘The Welfare State and Inequality in the 1980s’. Canadian Review of Sociology/Revue Canadienne de Sociologie 24 (3): 309–38. https://doi.org/10.1111/j.1755-618X.1987.tb01099.x.

Bardhan, Pranab, and Dilip Mookherjee. 2000. ‘Capture and Governance at Local and National Levels’. The American Economic Review 90 (2): 135–39.

Bjørnskov, Christian, Axel Drehe, and Justina A. V. Fischer. 2008. ‘On Decentralization and Life Satisfaction’. Economics Letters 99 (1): 147–51. https://doi.org/10.1016/j.econlet.2007.06.016.

Buchanan, James, and Gordon Tullock. 1965. The Calculus of Consent. Logical Foundations of Constitutional Democracy.

Cole, Richard L., and John Kincaid. 2000. ‘Public Opinion and American Federalism: Perspectives on Taxes, Spending, and Trust—An ACIR Update’. Publius: The Journal of Federalism 30 (1): 189–201. https://doi.org/10.1093/oxfordjournals.pubjof.a030060.

Cole, Richard L., John Kincaid, and Alejandro Rodriguez. 2004. ‘Public Opinion on Federalism and Federal Political Culture in Canada, Mexico, and the United States, 2004’. Publius 34 (3): 201–21.

Diaz-Serrano, Luis, and Andrés Rodríguez-Pose. 2012. ‘Decentralization, Subjective Well-Being, and the Perception of Institutions’. Kyklos 65 (2): 179–93. https://doi.org/10.1111/j.1467-6435.2012.00533.x.

Easterlin, R.A. 1974. ‘Does Economic Growth Improve the Human Lot? Some Empirical Evidence.’ In Nations and Households in Economic Growth: Essays in Honor of Moses Abramovitz, edited by P. David and R. Reder. New  York: Academic Press.

Elazar, Daniel J. 1993. ‘International and Comparative Federalism’. PS: Political Science and Politics 26 (2): 190–95. https://doi.org/10.2307/419827.

Escobar-Lemmon, Maria. 2001. ‘Fiscal Decentralization and Federalism in Latin America’. Publius 31 (4): 23–41.

Farnsworth, Stephen J. 1999. ‘Federal Frustration, State Satisfaction? Voters and Decentralized Governmental Power’. Publius 29 (3): 75–88. https://doi.org/10.2307/3331110.

Franzese, Robert J. 2001. ‘The Positive Political Economy of Public Debt: An Empirical Examination of the OECD Postwar Experience’. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1084130.

Frey, Bruno S., and Alois Stutzer. 2000. ‘Happiness, Economy and Institutions’. The Economic Journal 110 (466): 918–38.

Fukuyama, Francis. 2005. State Building. Governance and World Order in the Twenty-First Century. London: Profile Books.

Härtel, Ines. 2012. ‘Föderalismus und Neugier’. In Handbuch Föderalismus – Föderalismus als demokratische Rechtsordnung und Rechtskultur in Deutschland, Europa und der Welt: Band IV: Föderalismus in Europa und der Welt, edited by Ines Härtel, 995–1002. Berlin, Heidelberg: Springer. https://doi.org/10.1007/978-3-642-16883-3_31.

Headey, B., and P. Krause. 1988. A Health & Wealth Model of Change in Life Satisfaction: Analysing Links between Objective Conditions & Subjective Satisfaction; : Bonn, Germany, 1988. Bonn: Sonderforschungsbereich 3.

Hessami, Zohal. 2010. ‘The Size and Composition of Government Spending in Europe and Its Impact on Well-Being’. Kyklos 63 (3): 346–82. https://doi.org/10.1111/j.1467-6435.2010.00478.x.

Hirschman, Albert O. 1970. Exit, Voice, and Loyalty : Responses to Decline in Firms, Organizations, and States. Harvard University Press.

Kim, Seoyong, and Donggeun Kim. 2012. ‘Does Government Make People Happy?: Exploring New Research Directions for Government’s Roles in Happiness’. Journal of Happiness Studies 13 (5): 875–99. https://doi.org/10.1007/s10902-011-9296-0.

Kincaid, John, and Richard L. Cole. 2011. ‘Citizen Attitudes Toward Issues of Federalism in Canada, Mexico, and the United States’. Publius: The Journal of Federalism 41 (1): 53–75. https://doi.org/10.1093/publius/pjq035.

Lane, Jan-Erik, and Svante Ersson. 2005. ‘The Riddle of Federalism: Does Federalism Impact on Democracy?’ Democratization 12 (2): 163–82. https://doi.org/10.1080/13510340500069220.

Letelier S, Leonardo, José Luis Sáez Lozano, and Jorge Martinez-Vazquez. 2020. ‘Fiscal Decentralization and Life Satisfaction in Chile’. ICEPP Working Papers 130.

Letelier S, Leonardo, and José L. Sáez-Lozano. 2020. ‘Expenditure Decentralization: Does It Make Us Happier? An Empirical Analysis Using a Panel of Countries’. Sustainability 12 (7236). https://doi.org/doi:10.3390/su12187236.

Ligthart, Jenny E., and Peter van Oudheusden. 2015. ‘In Government We Trust: The Role of Fiscal Decentralization’. European Journal of Political Economy 37 (March): 116–28. https://doi.org/10.1016/j.ejpoleco.2014.11.005.

Lockwood, Ben. 2005. ‘Fiscal Decentralization: A Political Economy Perspective’. University of Warwick – Department of Economics- Economic Research Papers.

Malah, Yselle Flora, Dieudonné Mignamissi, and Brice Kuete. 2022. ‘Political Decentralization and Subjective Well-Being: Evidence from Propensity Score Matching Estimates’. Revue d’économie Politique Vol. 132 (July): 583–613. https://doi.org/10.3917/redp.324.0583.

Martin, J.K., and D.T. Lichter. 1983. ‘Geographic-Mobility and Satisfaction with Life and Work.’ Soc. Sci. Q. 64: 524–35.

Moore, Mick. 1988. ‘Death without Taxes: Democracy, State Capacity, and Aid Dependence in the Fourth World’. In In The Democratic Developmental State, edited by Mark Robinson and Gordon White. New  York: Oxford University Press.

Morawetz, D., E. Atia, G. Bin-Nun, L. Felous, Y. Gariplerden, E. Harris, S. Soustiel, G. Tombros, and Y. Zarfaty. 1977. ‘Income-Distribution and Self-Rated Happiness—Some Empirical-Evidence.’ Econ. J. 87: 511–22.

Morrison, Kevin. 2009. ‘Oil, Nontax Revenue, and the Redistributional Foundations of Regime Stability’. International Organization 63 (1): 107–38.

Ng, Y.K. 1978. ‘Economic-Growth and Social-Welfare—Need for a Complete Study of Happiness.’ Kyklos 32: 575–87.

Perrson, Torsten, and Guido Tabellini. 2000. Political Economics: Explaining Economic Policy. Cambridge, Mass.: MIT Press.

Ploeg, Frederick van der. 2011. ‘Natural Resources: Curse or Blessing?’ Journal of Economic Literature 49 (2): 366–420.

Riker. 1969. ‘Six Books in Search of a Subject or Does Federalism Exist and Does It Matter?’ Comparative Politics 2: 135–46.

Rodden, Jonathan. 2003. ‘Reviving Leviathan: Fiscal Federalism and the Growth of Government’. International Organization 57 (4): 695–729. https://doi.org/10.1017/S0020818303574021.

———. 2004. ‘Comparative Federalism and Decentralization: On Meaning and Measurement’. Comparative Politics 36 (4): 481. https://doi.org/10.2307/4150172.

———. 2006. ‘The Political Economy of Federalism’. In Oxford Handbook of Political Economy, edited by Barry R. Weingast and Donald Wittman. Oxford University Press.

Rodden, Jonathan A. 2019. ‘Decentralized Rule and Revenue’. In Decentralized Governance and Accountability, edited by Jonathan A. Rodden and Erik Wibbels, 1st ed., 91–114. Cambridge University Press. https://doi.org/10.1017/9781108615594.005.

Rodden, Jonathan, and Susan Rose-Ackerman. 1997. ‘Does Federalism Preserve Markets?’ Virginia Law Review 83 (7): 1521. https://doi.org/10.2307/1073767.

Rodríguez-Pose, Andrés, and Kristina Maslauskaite. 2011. ‘Can Policy Make Us Happier? Individual Characteristics, Socioeconomic Factors, and Life Satisfaction in Central and Eastern Europe’. Bruges European Economic Research Papers 22.

Rodríguez-Pose, Andrés, and Vassilis Tselios. 2018. ‘Well-Being, Political Decentralisation and Governance Quality in Europe’. Journal of Human Development and Capabilities, 47.

Ross, Michael. 2004. ‘Does Taxation Lead to Representation?’ 34 (2): 229–49.

Schmidt, Manfred. 1995. Demokratietheorien. Opladen: Leske und Budrich.

Scitovsky, T. 1976. ‘Income and Happiness.’ Acta Oecon. 15: 45–53.

Sturm, Roland. 2018. ‘Föderalismus’. In Handbuch Staat, edited by Rüdiger Voigt, 441–50. Wiesbaden: Springer Fachmedien. https://doi.org/10.1007/978-3-658-20744-1_40.

Sujarwoto, Sujarwoto, and Gindo Tampubolon. 2015. ‘Decentralisation and Citizen Happiness: A Multilevel Analysis of Self-Rated Happiness in Indonesia’. J Happiness Stud 16: 455–75. https://doi.org/10.1007/s10902-014-9518-3.

Tarr, G. A. 2001. ‘Laboratories of Democracy? Brandeis, Federalism, and Scientific Management’. Publius: The Journal of Federalism 31 (1): 37–46. https://doi.org/10.1093/oxfordjournals.pubjof.a004880.

Treisman, Daniel. 2000. ‘The Causes of Corruption: A Cross-National Study’. Journal  of  Public  Economics 76: 399–457.

Voigt, Stefan, and Lorenz Blume. 2012. ‘The Economic Effects of Federalism and Decentralization—a Cross-Country Assessment’. Public Choice 151 (1): 229–54. https://doi.org/10.1007/s11127-010-9745-z.

Volden, Craig. 2002. ‘The Politics of Competitive Federalism: A Race to the Bottom in Welfare Benefits?’ American Journal of Political Science 46 (2): 352–63. https://doi.org/10.2307/3088381.

Wachendorfer-Schmidt, Ute. 2000. Federalism and Political Performance. London: Routledge.

Wallis, John Joseph. 2004. ‘Constitutions, Corporations, and Corruption: American States and Constitutional Change’. w10451. Cambridge, MA: National Bureau of Economic Research. https://doi.org/10.3386/w10451.

Watts, Ronald L. 2007. ‘The Federal Idea and Its Contemporary Relevance’. Queen’s University, 40.

Yushkov, Andrey. 2015. ‘Fiscal Decentralization and Regional Economic Growth: Theory, Empirics, and the Russian Experience’. Russian Journal of Economics 1 (December): 404–18. https://doi.org/10.1016/j.ruje.2016.02.004.

 

Further Reading

Frey, Bruno S., and Alois Stutzer. 2000. ‘Happiness, Economy and Institutions’. The Economic Journal 110 (466): 918–38.

Rodríguez-Pose, Andrés, and Vassilis Tselios. 2018. ‘Well-Being, Political Decentralisation and Governance Quality in Europe’. Journal of Human Development and Capabilities, 47.

Frey, Bruno, and Alois Stutzer. 2019. ‘Public Choice and Happiness’, in: Roger D. Congleton, Bernard Grofman, and Stefan Voigt (eds), The Oxford Handbook of Public Choice, Volume 1