Looking at the political consequences of decentralization, Weingast (1995) proposes that a properly designed decentralization is one way to make government more accountable to its citizens. He uses the term “market-preserving federalism” for a fiscal decentralization that provides (1) a clearly delineated scope of governmental authority, (2) strong authority of sub-national governments in their jurisdictions, (3) centrally enforced prohibitions of barriers to trade and factor mobility, (4) hard budget constraints on revenue sharing and borrowing, (5) legal protection of the authority of sub-national government including protection from federal confiscation, and, thus, offers (6) incentives for regional governments to compete.
