Coalition Government or Federalism? The Relationship between Policy Distance and Institutional Design

This study theorises the political system after the introduction of democracy through one mechanism: federalism and coalition government. This study shows that if a stable ruling party can be constituted by a coalition government without a federal system, then either the coalition government is maintained or a single party runs the state government as the ruling party, without devolving as much power to the regions as in a federal system. However, if there is a strong opposition party and the ruling party cannot be expected to have sufficient policy effectiveness, and if the opposition is strong enough in some regions to be the opposition party in the national government but the ruling party in the regions if federalism is introduced, then both the ruling party and the opposition party will benefit from federalism. Incentives then arise for both the ruling party and the opposition to reduce the powers of the state as a state and increase the powers of local government.Institutional designers choose whether to introduce federalism or to constitute a coalition government as a way of optimising investment for policy by the parties as well as the balance between policy distance between parties and the size of the parties