legislation of 1996—and also for securing a dramatic decline in caseloads. How much of the
decline, however, could be attributed to the actions of the states, both before and after the 1996
law, is actually a matter of considerable debate. Most of the caseload reduction had less to do
with inventive state policies than with a strong economy and expanded federal aid (most notably,
the Earned Income Tax Credit) to low-income persons who entered the workforce.
In sum,
although state experiments were undoubtedly instructive and consequential, other fundamentals
were more so. One suspects that what holds for the welfare story also applies to some other local
reforms (for example, smart growth strategies, school choice, or the deregulation of electric
utilities), the impact of which state politicians sometimes exaggerate.
Competitive Federalism
Does federalism necessarily deliver leaner, more efficient government? There is, of
course, reason to think that it could.
The states are constitutionally obligated to balance their
budgets. To spend, these governments have to tax—and that unpleasant requirement supposedly
disciplines profligate politicians. So does interstate competition. Presumably few jurisdictions
20
Douglas J. Besharov, “The Past and Future of Welfare Reform,” The Public Interest, 150 (Winter 2003), p. 17.
21
There is a literature on the extent to which federal policies are inspired by experience at the state level. The
overall picture seems quite mixed. See, for instance, Thomas J. Anton, American Federalism and Public Policy
(Philadelphia: Temple University Press, 1989); Keith Boeckelman, “The Influence States of Federal Policy
Adoptions,” Political Studies I, 20 (1992); Michael S. Sparer and Lawrence D. Brown, “States and the Health Care
Crisis: The Limits and Lessons of Laboratory Federalism,” in Robert F. Rich and William D. White, eds., Health
Policy and the American States (Washington, DC: Urban Institute Press, 1996).
22
An early exposition along these lines was Geoffrey Brennan and James Buchanan, The Power to Tax: Analytical
Foundations of a Fiscal Constitution (Cambridge University Press, 1980). Brennan and Buchanan argued that the
public sector “should be smaller, ceteris paribus, the greater the extent to which taxes and expenditures are de-
centralized” (p. 185). A more current rendition is Michael S. Greve, Real Federalism: Why It Matters, How It
Could Happen (Washington, DC: American Enterprise Institute, 1999). Also, see Barry R. Weingast, “The
Economic Role of Political Institutions: Market-Preserving Federalism and Economic Development,” Journal of
Law, Economics, and Organization, 11 (1995). There remains considerable empirical debate about the relationship
between the overall size of public sectors and the extent of fiscal decentralization. See Wallace E. Oates,
“Searching for Leviathan: An Empirical Study,” American Economic Review, 75 (1985).
9
Convention