Federalism is a governance structure that enables the aggregation of mass areas under one government. Federalism is a more complex form of governance than a unitary system. Under a federal structure of government, the activities are constitutionally divided (or shared) between constituent governments and a central government, implying a permanent coexistence and bargaining between participating governments and the center or among participating governments themselves. This chapter delineates the current state of knowledge regarding federalism and its twin concept of decentralization from the public-choice perspective. First, the chapter looks at federalism as an explanatory variable by examining how it shapes various outcomes ranging from economic growth to incidence of terrorism. Second, it deals with endogenous federalism and thus factors that explain how it emerges, survives, and changes. In the last part, the chapter summarizes several potential avenues for future research on federalism.
