Federalism and Inclusion in Developing Economies

Using two-step system-GMM on an unbalanced panel data of 105 economies over the period 1987–2016, we present formal statistical evidence that federalism is a strong predictor of greater income inequality in developing economies. Moreover, federalism does not predict lower poverty incidence and severity in countries on average, but it may predict higher poverty severity in developing economies. Thus, for a developing economy such as the Philippines, federalism might constitute a leap from the frying pan into the fire of even greater income inequality and poverty incidence.

Keywords: federalism, poverty, inequality
JEL Classification: D3, I3, O1