The view of states as liberal counterweights to Washington is relatively new,however. More typical has been the view that many state governments, if left to
their own devices, would, in the view of liberals, begin a ‘‘race to the bottom,’’ or in
the view of conservatives, allow market forces to work as they should. The conXict
between a vision based on competitive federalism with its concomitant reliance on
state rather than federal power and one based on centralized federalism with
Washington wielding very considerable power underlies both public policy and
the scholarship—much of it with strong normative overtones—on American
federalism.
Literature interested in the intersection of public authority and markets tends to
make the argument for competitive federalism—the view being that competitive
federalism is ‘‘market-preserving.’’ By contrast, both activists and scholars
interested in either social regulation (such as environmental protection) or social
protection (such as assistance to the needy or rights for the disabled) tend to make
the argument for various degrees of federal preemption of state authority. States
are very engaged in economic development activities—which requires their
competing with one another to keep and attract businessWrms as well as creating
the infrastructure conducive to business activity (Fosler 1988 ; Thomas 2000 ). Many
therefore fear that without the intervention of Washington, competitive federalism
forces generous states to become more conservative in order not to frighten—as
well as to attract—mobile capital. In a similar vein, generous states are viewed as
running the risk of becoming ‘‘welfare magnets’’ so that only federal social policy
can eVectively address poverty (Peterson and Rom 1990 , 8 ). Generous states, in fact,
may support federal intervention precisely to avoid being isolated and to insulate
themselves from the forces of competitive federalism. 3
3 It should be noted that there is still no scholarly consensus regarding the extent to which
competitive federalism aVects welfare policies. Research on competitive federalism and welfare
revolves around the questions of whether more generous beneWts have an impact on the location
decision of the poor (namely whether generous states become ‘‘welfare magnets’’) and on whether
states compete down with neighboring states, reducing beneWts if their neighbors reduce them (the
‘‘race-to-the-bottom’’ hypothesis).
It should be noted that these questions may not be empirically linked, in that political incentives
may induce state policy-makers to engage in a ‘‘race to the bottom’’ over welfare beneWts even though
more generous beneWts do not aVect, or only marginally aVect, the location decisions of prospective
welfare recipients (Bailey and Rom 2004 , 327 ; Brueckner 2000 , 508 ).
Empirical results on both hypotheses have been mixed. As regards theWrst hypothesis, some have
found very little evidence of states acting as welfare magnets (Schram, Nitz, and Krueger 1998 ; Schram
and Soss 1998 ; Levine and Zimmerman 1999 ; Allard and Danziger 2000 ; Berry, Fording, and Hanson
2003 ) while others doWnd evidence that supports the welfare magnet hypothesis, although the size of
the eVect of welfare beneWts on location decisions tends to be small (Bailey 2005 ; Enchautegui 1997 ).
As regards the race-to-the-bottom hypothesis, most research has found statistically signiWcant
(although in most cases substantively small) eVects, indicating that there is some competition to
reduce welfare beneWts among similar states, even though the extent of the impact of this competition
on actual beneWt levels is low (Figlio, Kolpin, and Reid 1999 ; Saavedra 2000 ; Rom, Peterson, and
american federalism and intergovernmental relations 247