Abstract

The failure of the European Union to offer an institutional response to the sovereign debt crisis, the growing challenge in Catalonia to the existing design of the Spanish state, or, in a different context, the inability to craft a stable framework for co-existence of different identities in Iraq, all relate to the question of the virtues (and vices) of different forms of federalism. The evolving geography of political conflict and contestation in the post-Cold War world is rekindling academic interest in the subject. This chapter begins by reviewing basic conceptual issues. We then turn to discuss the origins of federalism and its implications for the functioning of democracy and markets. Finally, we close the chapter by briefly addressing the dynamic aspects of federalism as an incomplete contract and its implications for the question of institutional stability.