Race to the Bottom study

This page provides supporting materials for my paper: “Policy Dynamics: Race to the Bottom – Federalism’s Favorite Phantom”, produced for the Handbook of Federations and Federal Studies (forthcoming)

Included here is the methodology used to select and organize the articles examined for this study, specific studies mentioned in the paper, and full references to the 104 examined studies.  

Methodology

The literature examining races to the bottom caused by intergovernmental competition is large.  To manage the project and minimize bias, we limited our study to the 100 most cited scholarly articles on intergovernmental competition and race to the bottom.  These articles were selected in November 2017, then checked and updated in May 2018.  By using the most cited scholarly articles we hoped to identify a good proportion of the most important and influential.  We identified these articles by using the “Web of Sciences” (the Social Sciences ISI database) and searching for the terms “race to the bottom” using the “sort” feature that listed the most cited articles first.  After identifying the top 100 most-cited articles, our list included articles that had been cited 15 or more times.  That list contained only a few of the articles that had been cited 15 times, so rather than accepting only the first few of those articles we included all articles cited 15 times or more (for a total of 104 articles).

After the most-cited articles were selected, we then read and tagged the articles for relevant variables using Atlas.ti software.  The articles were sorted into two categories: theoretical or empirical depending on whether the argument presented primarily a theoretical or empirical analysis.  These two categories were then separated into “race to the bottom is real and significant,” “race to the bottom is not real or significant,” and “inconclusive.”  In many studies, the authors limited or hedged their claims; when the conclusions are clearly ambiguous, then the article is labelled as “inconclusive,” but if the conclusion or preponderance falls to one side or other, then the article is placed in that category.  

We recognize that citation frequency is an imperfect measure for an article’s accuracy and impact.  For example, nonreplicable publications are cited more than replicable ones (Serra-Garcia and Gneezy 2021).  Consequently, this method of selecting articles for inclusion in this study may miss some very relevant, replicated, and highly impactful studies.  Nonetheless, citation frequency does identify the most commonly referenced articles in the field and should provide a view into how the topic is being considered and understood by the discipline.  

To supplement the obvious limitation of relying on citation frequency to understand a topic, we referred to additional articles and books relating to race to the bottom to identify the origins, usage, development and theories associated with race to the bottom.  These additional readings are not included in the statistical analysis unless they were independently identified by our search of “The Web of Sciences” database showing they were cited by other scholarly sources 15 times or more. 

Specific studies mentioned in the paper

18 studies we examined found empirical evidence of a race to the bottom. Twelve of those 18 operationalized race to the bottom in problematic ways. Those 12 are the following: Asici 2013; Chan 2003; Davies 2013; Fox 2000; Jauch 2002; Kiefer 2015; LoPucki 2001; Muradian 2001; Rom and Peterson 1998; Subramanian 2004; Taylor 2008; and Woods 2006.  

The specific articles that found a correlation between intergovernmental competition and race to the bottom are as follows: Asici 2013; Bagwell and Staiger 2001, 69; Davies 2013; Goetz 2011.

The five specific empirical studies that found support for the race to the bottom thesis and which were also the most recently published studies are: Asici 2013; Davies 2013; Kiefer 2015; Olney 2013; Thiemann 2014.

Bibliography of Articles Evaluated in this Study

Allard, S. W. and S. Danziger. “Welfare Magnets: Myth or Reality?” Journal of Politics 62, no. 2 (May 2000): 350-68. http://dx.doi.org/Doi 10.1111/0022-3816.00016.

Arnold, Tobias and Isabelle Stadelmann. “How Federalism Influences Welfare Spending: Belgium Federalism Reform through the Perspective of the Synthetic Control Method  ” European Journal of Political Research 56, no. 3 (March 2017): 680-702. http://dx.doi.org/10.1111/1475-6765.12196.

Baldwin, R. E. and P. Krugman. “Agglomeration, Integration and Tax Harmonisation.” European Economic Review 48, no. 1 (Feb 2004): 1-23. http://dx.doi.org/10.1016/s0014-2921(02)00318-5.

Basinger, S. J. and M. Hallerberg. “Remodeling the Competition for Capital: How Domestic Politics Erases the Race to the Bottom.” American Political Science Review 98, no. 2 (May 2004): 261-76. <Go to WoS>://WOS:000245154600005.

Benassy-Quere, A., N. Gobalraja, and A. Trannoy. “Tax and Public Input Competition.” Economic Policy, no. 50 (Apr 2007): 385-430. <Go to WoS>://WOS:000259040200003.

Bernard, P. and G. Boucher. “Institutional Competitiveness, Social Investment, and Welfare Regimes.” Regulation & Governance 1, no. 3 (Sep 2007): 213-29. http://dx.doi.org/10.1111/j.1748-5991.2007.00016.x.

Berry, W. D., R. C. Fording, and R. L. Hanson. “Reassessing the “Race to the Bottom” in State Welfare Policy.” Journal of Politics 65, no. 2 (May 2003): 327-49. <Go to WoS>://WOS:000258167900003.

Bertrand, M., S. Johnson, K. Samphantharak, and A. Schoar. “Mixing Family with Business: A Study of Thai Business Groups and the Families Behind Them.” Journal of Financial Economics 88, no. 3 (Jun 2008): 466-98. http://dx.doi.org/10.1016/j.jfineco.2008.04.002.

Bhadra, D. “Race to the Bottom or Swimming Upstream: Performance Analysis of Us Airlines.” Journal of Air Transport Management 15, no. 5 (Sep 2009): 227-35. http://dx.doi.org/10.1016/j.jairtraman.2008.09.014.

Borck, R. and M. Pfluger. “Agglomeration and Tax Competition.” European Economic Review 50, no. 3 (Apr 2006): 647-68. http://dx.doi.org/10.1016/j.euroecorev.2005.01.006.

Brueckner, J. K. “Welfare Reform and the Race to the Bottom: Theory and Evidence.” Southern Economic Journal 66, no. 3 (Jan 2000): 505-25. http://dx.doi.org/10.2307/1061423.

Brulhart, M., M. Jametti, and K. Schmidheiny. “Do Agglomeration Economies Reduce the Sensitivity of Firm Location to Tax Differentials?” Economic Journal 122, no. 563 (Sep 2012): 1069-93. http://dx.doi.org/10.1111/j.1468-0297.2012.02511.x.

Busemeyer, M. R. “From Myth to Reality: Globalisation and Public Spending in Oecd Countries Revisited.” European Journal of Political Research 48, no. 4 (Jun 2009): 455-82. http://dx.doi.org/10.1111/j.1475-6765.2009.00838.x.

Cai, H. B. and D. Treisman. “State Corroding Federalism.” Journal of Public Economics 88, no. 3-4 (Mar 2004): 819-43. http://dx.doi.org/10.1016/s0047-2727(02)00220-7.

Castles, F. G. “On the Political Economy of Recent Public Sector Development.” Journal of European Social Policy 11, no. 3 (Aug 2001): 195-211. <Go to WoS>://WOS:000187551200002.

Chan, A. and R. J. S. Ross. “Racing to the Bottom: International Trade without a Social Clause.” Third World Quarterly 24, no. 6 (Dec 2003): 1011-28. http://dx.doi.org/10.1080/01436590310001630044.

Chernick, H. “Fiscal Effects of Block Grants for the Needy: An Interpretation of the Evidence.” International Tax and Public Finance 5, no. 2 (May 1998): 205-33. http://dx.doi.org/10.1023/a:1008694405571.

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Racing to the Bottom or Riding on a Seesaw? Working Paper No. 3. Department of the Treasury of the Italian Min istry of Economy and Finance, August 2017  

Craw, M. “Overcoming City Limits: Vertical and Horizontal Models of Local Redistributive Policy Making.” Social Science Quarterly 87, no. 2 (Jun 2006): 361-79. http://dx.doi.org/10.1111/j.1540-6237.2006.00385.x.

Dasgupta, S., B. Laplante, H. Wang, and D. Wheeler. “Confronting the Environmental Kuznets Curve.” Journal of Economic Perspectives 16, no. 1 (Win 2002): 147-68. http://dx.doi.org/10.1257/0895330027157.

Davies, R. B. and K. C. Vadlamannati. “A Race to the Bottom in Labor Standards? An Empirical Investigation.” Journal of Development Economics 103 (Jul 2013): 1-14. http://dx.doi.org/10.1016/j.jdeveco.2013.01.003.

De Jong, G. F., D. R. Graefe, S. K. Irving, and T. St Pierre. “Measuring State Tanf Policy Variations and Change after Reform.” Social Science Quarterly 87, no. 4 (Dec 2006): 755-81. http://dx.doi.org/10.1111/j.1540-6237.2006.00432.x.

de Soysa, I. and K. C. Vadlamannati. “Does Being Bound Together Suffocate, or Liberate? The Effects of Economic, Social, and Political Globalization on Human Rights, 1981-2005.” Kyklos 64, no. 1 (Feb 2011): 20-53. http://dx.doi.org/10.1111/j.1467-6435.2010.00493.x.

Dong, B. M., J. Gong, and X. Zhao. “Fdi and Environmental Regulation: Pollution Haven or a Race to the Top?” Journal of Regulatory Economics 41, no. 2 (Apr 2012): 216-37. http://dx.doi.org/10.1007/s11149-011-9162-3.

Drezner, D. W. “Bottom Feeders.” Foreign Policy, no. 121 (Nov-Dec 2000): 64-70. http://dx.doi.org/10.2307/1149620.

Dvorkin, Maximiliano. “Fiscal Federalism and Optimal Income Taxes.” Federal Reserve Bank of St. Louis Review 99, no. 4 (2017): 319-36. http://dx.doi.org/https://doi.org/10.20955/r.2017.319-336.

Engel, K. H. “State Environmental Standard-Setting: Is There a ”Race” and Is It ”to the Bottom”?” Hastings Law Journal 48, no. 2 (Jan 1997): 271-&. <Go to WoS>://WOS:A1982NQ10500003.

Fischel, D. R. “The Race to the Bottom Revisited – Reflections on Recent Developments in Delaware Corporation Law.” Northwestern University Law Review 76, no. 6 (1982): 913-45. <Go to WoS>://WOS:000167722900008.

Fischel, W. A. “Homevoters, Municipal Corporate Governance, and the Benefit View of the Property Tax.” National Tax Journal 54, no. 1 (Mar 2001): 157-73. <Go to WoS>://WOS:000166057400030.

Fox, E. M. “Antitrust and Regulatory Federalism: Races up, Down, and Sideways.” New York University Law Review 75, no. 6 (Dec 2000): 1781-807. <Go to WoS>://WOS:000289161500005.

Genschel, P., A. Kemmerling, and E. Seils. “Accelerating Downhill: How the Eu Shapes Corporate Tax Competition in the Single Market.” Jcms-Journal of Common Market Studies 49, no. 3 (May 2011): 585-606. http://dx.doi.org/10.1111/j.1468-5965.2010.02136.x.

Goergen, M. and L. Renneboog. “Contractual Corporate Governance.” Journal of Corporate Finance 14, no. 3 (Jun 2008): 166-82. http://dx.doi.org/10.1016/j.jcorpfin.2008.04.003.

Goetz, S. J., M. D. Partridge, D. S. Rickman, and S. Majumdar. “Sharing the Gains of Local Economic Growth: Race-to-the-Top Versus Race-to-the-Bottom Economic Development.” Environment and Planning C-Government and Policy 29, no. 3 (Jun 2011): 428-56. http://dx.doi.org/10.1068/c1077r.

Haupt, A. and W. Peters. “Restricting Preferential Tax Regimes to Avoid Harmful Tax Competition.” Regional Science and Urban Economics 35, no. 5 (Sep 2005): 493-507. http://dx.doi.org/10.1016/j.regsciurbeco.2004.07.002.

Hays, J. C. “Globalization and Capital Taxation in Consensus and Majoritarian Democracies.” World Politics56, no. 1 (Oct 2003): 79-+. http://dx.doi.org/10.1353/wp.2004.0004.

Holzinger, K. “Common Goods, Matrix Games and Institutional Response.” European Journal of International Relations 9, no. 2 (Jun 2003): 173-212. http://dx.doi.org/10.1177/1354066103009002002.

Hong, Q. and M. Smart. “In Praise of Tax Havens: International Tax Planning and Foreign Direct Investment.” European Economic Review 54, no. 1 (Jan 2010): 82-95. http://dx.doi.org/10.1016/j.euroecorev.2009.06.006.

Houston, J. F., C. Lin, and Y. Ma. “Regulatory Arbitrage and International Bank Flows.” Journal of Finance 67, no. 5 (Oct 2012): 1845-95. http://dx.doi.org/10.1111/j.1540-6261.2012.01774.x.

Huberman, M. “Working Hours of the World Unite? New International Evidence of Worktime, 1870-1913.” Journal of Economic History 64, no. 4 (Dec 2004): 964-1001. <Go to WoS>://WOS:000238894300007.

Huizinga, H. and G. Nicodeme. “Foreign Ownership and Corporate Income Taxation: An Empirical Evaluation.” European Economic Review 50, no. 5 (Jul 2006): 1223-44. http://dx.doi.org/10.1016/j.euroecorev.2005.02.004.

Jamal, K., M. Maier, and S. Sunder. “Privacy in E-Commerce: Development of Reporting Standards, Disclosure, and Assurance Services in an Unregulated Market.” Journal of Accounting Research 41, no. 2 (May 2003): 285-309. http://dx.doi.org/10.1111/1475-679x.00104.

Janger, E. J. “Predicting When the Uniform Law Process Will Fail: Article 9, Capture, and the Race to the Bottom.” Iowa Law Review 83, no. 3 (Mar 1998): 569-632. <Go to WoS>://WOS:000175551200009.

Jauch, H. “Export Processing Zones and the Quest for Sustainable Development: A Southern African Perspective.” Environment and Urbanization 14, no. 1 (Apr 2002): 101-13. http://dx.doi.org/10.1177/095624780201400109.

Keating, M. “Social Citizenship, Solidarity and Welfare in Regionalized and Plurinational States.” Citizenship Studies 13, no. 5 (2009): 501-13. http://dx.doi.org/10.1080/13621020903174654.

Konisky, D. M. “Regulatory Competition and Environmental Enforcement: Is There a Race to the Bottom?” American Journal of Political Science 51, no. 4 (Oct 2007): 853-72. http://dx.doi.org/10.1111/j.1540-5907.2007.00285.x.

Krings, T. “A Race to the Bottom? Trade Unions, Eu Enlargement and the Free Movement of Labour.” European Journal of Industrial Relations 15, no. 1 (Mar 2009): 49-69. http://dx.doi.org/10.1177/0959680108100165.

Kunce, M. and J. F. Shogren. “On Interjurisdictional Competition and Environmental Federalism.” Journal of Environmental Economics and Management 50, no. 1 (Jul 2005): 212-24. http://dx.doi.org/10.1016/j.jeem.2004.11.004.

Kvist, J. “Does Eu Enlargement Start a Race to the Bottom? Strategic Interaction among Eu Member States in Social Policy.” Journal of European Social Policy 14, no. 3 (Aug 2004): 301-18. http://dx.doi.org/10.1177/0958928704044625.

Lazer, D. “Regulatory Interdependence and International Governance.” Journal of European Public Policy 8, no. 3 (2001): 474-92. http://dx.doi.org/10.1080/13501760110056077.

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Lenter, D., J. Slemrod, and D. Shackelford. “Public Disclosure of Corporate Tax Return Information: Accounting, Economics, and Legal Perspectives.” National Tax Journal 56, no. 4 (Dec 2003): 803-30. <Go to WoS>://WOS:000184025600002.

Lim, T. C. “Racing from the Bottom in South Korea? The Nexus between Civil Society and Transnational Migrants.” Asian Survey 43, no. 3 (May-Jun 2003): 423-42. http://dx.doi.org/10.1525/as.2003.43.3.423.

Lindstrom, N. “Service Liberalization in the Enlarged Eu: A Race to the Bottom or the Emergence of Transnational Political Conflict?” Jcms-Journal of Common Market Studies 48, no. 5 (Nov 2010): 1307-27. http://dx.doi.org/10.1111/j.1468-5965.2010.02114.x.

List, J. A. and S. Gerking. “Regulatory Federalism and Environmental Protection in the United States.” Journal of Regional Science 40, no. 3 (Aug 2000): 453-71. http://dx.doi.org/10.1111/0022-4146.00183.

LoPucki, L. M. and S. D. Kalin. “The Failure of Public Company Bankruptcies in Delaware and New York: Empirical Evidence of a Race to the Bottom.” Vanderbilt Law Review 54, no. 2 (Mar 2001): 231-82. <Go to WoS>://WOS:000273758300010.

Madsen, P. M. “Does Corporate Investment Drive a “Race to the Bottom” in Environmental Protection? A Reexamination of the Effect of Environmental Regulation on Investment.” Academy of Management Journal 52, no. 6 (Dec 2009): 1297-318. <Go to WoS>://WOS:000299947800019.

Marsden, T. “Towards a Real Sustainable Agri-Food Security and Food Policy: Beyond the Ecological Fallacies?” Political Quarterly 83, no. 1 (Jan-Mar 2012): 139-45. http://dx.doi.org/10.1111/j.1467-923X.2012.02242.x.

Mendoza, E. G. and L. L. Tesar. “Why Hasn’t Tax Competition Triggered a Race to the Bottom? Some Quantitative Lessons from the Eu.” Journal of Monetary Economics 52, no. 1 (Jan 2005): 163-204. http://dx.doi.org/10.1016/j.jmoneco.2004.07.002.

Millimet, D. L. “Assessing the Empirical Impact of Environmental Federalism.” Journal of Regional Science 43, no. 4 (Nov 2003): 711-33. http://dx.doi.org/10.1111/j.0022-4146.2003.00317.x.

Morris, J. J. “Black Queen Evolution: The Role of Leakiness in Structuring Microbial Communities.” Trends in Genetics 31, no. 8 (Aug 2015): 475-82. <Go to WoS>://WOS:000247915300001.

Mosley, L. and S. Uno. “Racing to the Bottom or Climbing to the Top? Economic Globalization and Collective Labor Rights.” Comparative Political Studies 40, no. 8 (Aug 2007): 923-48. http://dx.doi.org/10.1177/0010414006293442.

Muller, A. “How to Make the Clean Development Mechanism Sustainable – the Potential of Rent Extraction.” Energy Policy 35, no. 6 (Jun 2007): 3203-12. http://dx.doi.org/10.1016/j.enpol.2006.11.016.

Muradian, R. and J. Martinez-Alier. “Trade and the Environment: From a ‘Southern’ Perspective.” Ecological Economics 36, no. 2 (Feb 2001): 281-97. http://dx.doi.org/10.1016/s0921-8009(00)00229-9.

Olney, W. W. “A Race to the Bottom? Employment Protection and Foreign Direct Investment.” Journal of International Economics 91, no. 2 (Nov 2013): 191-203. http://dx.doi.org/10.1016/j.jinteco.2013.08.003.

Pavlov, A. and S. M. Wachter. “The Inevitability of Marketwide Underpricing of Mortgage Default Risk.” Real Estate Economics 34, no. 4 (Win 2006): 479-96. http://dx.doi.org/10.1111/j.1540-6229.2006.00175.x.

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Pollack, M. A. “Representing Diffuse Interests in Ec Policy-Making.” Journal of European Public Policy 4, no. 4 (1997): 572-90. http://dx.doi.org/10.1080/135017697344073.

Potoski, M. “Clean Air Federalism: Do States Race to the Bottom?” Public Administration Review 61, no. 3 (May-Jun 2001): 335-42. http://dx.doi.org/10.1111/0033-3352.00034.

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Sterk, S. E. “Asset Protection Trusts: Trust Law’s Race to the Bottom?” Cornell Law Review 85, no. 4 (May 2000): 1035-117. <Go to WoS>://WOS:000176222900002.

Subramanian, G. “The Influence of Antitakeover Statutes on Incorporation Choice: Evidence on the “Race” Debate and Antitakeover Overreaching.” University of Pennsylvania Law Review 150, no. 6 (Jun 2002): 1795-873. http://dx.doi.org/10.2307/3312981.

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Volden, C. “The Politics of Competitive Federalism: A Race to the Bottom in Welfare Benefits?” American Journal of Political Science 46, no. 2 (Apr 2002): 352-63. http://dx.doi.org/10.2307/3088381.

Wheaton, W. C. “Decentralized Welfare: Will There Be Underprovision?” Journal of Urban Economics 48, no. 3 (Nov 2000): 536-55. http://dx.doi.org/10.1006/jucc.2000.2179.

Wincott, D. “Social Policy and Social Citizenship: Britain’s Welfare States.” Publius: The Journal of Federalism36, no. 1 (Win 2006): 169-88. http://dx.doi.org/10.1093/publius/pji004.

Woods, N. D. “Interstate Competition and Environmental Regulation: A Test of the Race-to-the-Bottom Thesis.” Social Science Quarterly 87, no. 1 (Mar 2006): 174-89. http://dx.doi.org/10.1111/j.0038-4941.2006.00375.x.

Zeng, K. and J. Eastin. “International Economic Integration and Environmental Protection: The Case of China.” International Studies Quarterly 51, no. 4 (Dec 2007): 971-95. http://dx.doi.org/10.1111/j.1468-2478.2007.00485.x.

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Federalism & Covenant

Federalism is drawn from the Latin word foedus which means treaty, pact, or covenant. The idea of using covenants to establish and organize society became popular in the Middle Ages. Religious groups formed by covenant called themselves covenant societies, and political groups were called federal societies. In 1620, the Pilgrims and others passengers onboard the Mayflower adopted a covenant to order and organize their community before stepping foot in the new world. Most of the other major groups that emigrated to America in the 17th century were also established by covenants. For 170 years, from the Mayflower to the U.S. Constitution, Americans experimented with covenants as a means to organize their political societies. Indeed, the Massachusetts’ Constitution of 1780 explicitly declares the political system is established upon a covenant between each and all. 

Understanding federalism’s roots in covenant can help understand the founding fathers’ ideas about the federal system of government created by the U.S. Constitution. That is how to protect the autonomy and integrity of the federal and state governments in a non-centralized system using simple rules that will hopefully result in a complex, spontaneous, emergent order.

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Federalism & Complexity

Complexity begins with understanding emergence. One way to understand emergence is that simple rules can result in complex, spontaneous orders. 

We see an example of emergence in agent-based systems. These are computer programs that create “agents”, and each agent follows a few simple rules. An example of this is boids, where aach boid follows three simple rules and the result is an unplanned, emergent, spontaneous order. 

The three simple rules each boid follows is sufficient to explain how birds flock and fish school. Another study claims to explain how wolves hunt in a pack by using two rules. If simple rules can generate emergent, spontaneous orders in computer simulations and real world animals, can simple rules result in emergent, spontaneous order in human systems?

This next video claims that is indeed the case. 

Simple rules can result in complex, emergent, spontaneous orders. Such orders can be robust and resilient, but they are not invincible. The emergence and perpetuation of those orders depends on some basic conditions. Consider the enormous diversity of a saltwater tide pool. That ecosystem shifts through cycles, but it is fairly stabile. That system, however, may be shocked with a new organism or change to the water’s chemistry or temperature. Human societies are similar. Under the correct circumstances humans may be free and pursue fulfilling lives while their society flourishes. Under other conditions, none of that is possible. 

One of the most fascinating examples of complex, intelligent behavior comes from slime molds — a single, cell organization that displays intelligence, learning, and adaptation. 

Emergence, whether in a single-cell organism like slime molds or more advanced organisms like ants, fish, birds, and wolves raise questions about the basis of intelligence, the nature of order, and challenges the fundamental assumptions of the standard science model (i.e., materialism, reducibility, linearity, and reversibility) and the standard social science model (i.e., that humans are blank slates capable of learning but learn entirely from their environment). 

Our understanding of emergence is teaching us to rethink human society and rules of cooperation. Consider the signalless traffic intersection. Sounds like a recipe for disaster, but when correctly designed it actually improves traffic flow and results in fewer accidents. 

What are the conditions that foster free, fulfilling, and flourishing human lives and societies? That is an important question. Complexity suggests that simple rules under the correct conditions might accomplish this. How can we create those conditions and rules? I think federalism is an important part of that answer. That is why I study complexity and federalism.