Natural Polarization, Sorting, and Gridlock in a Federal System

Abstract:

This paper presents a theory of policymaking at the federal and state levels where individuals locate in states based on state policies. Individuals have a productivity and an ideology that represents the strength of preferences for redistribution and social policy. States and the federal government choose a tax rate, spending on redistribution or a public good, and social policy. Individuals choose how much to work and in which state to reside. States and individuals separate with a high tax state that redistributes attracting individuals with lower productivity and stronger ideology and a low tax state that provide the public good and attracts individuals with higher productivity and weaker ideology. Polarization is thus natural and originates in the states. Sorting implies that states are politically noncompetitive. The federal government is divided and bargains over a tax rate, spending, and social policy. A new form of gridlock emerges as the federal government declines enacting a social policy, allowing each state to enact its own policy. Gridlock reinforces the sorting among the states and amplifies polarization. Gridlock is welfare-enhancing but divisive. Gridlock does not occur on economic policy. Recent Supreme Court cases increased the space for social policy gridlock.