Centralized federalism combines local governments with a central government run by an elected president or executive council. All policy responsibilities are assigned initially to the central government. If the elected president or council wishes, those responsibilities may be reassigned to local governments.

Centralized federalism is likely to offer only fragile protection for individual rights. When the majority electing the executive is a stable majority, either because of stable economic interests or ethnic allegiances, the place and prospects of immobile minority groups is solely defined by the ruling majority. The fate of Blacks in the U.S. South before the Voting blights Act of 1965 and that of Jews in Nazi Germany illustrate the potential risks to basic liberties with strong, majority-controlled central governments.

Nor is centralized federalism likely to enhance the goal of political participation. The constitution concentrates all policy responsibilities at the central government level. Powers can be decentralized if the executive so decides, but this seems unlikely if the executive’s re-election prospects depend upon fulfilling campaign promises. Local governments, arguably the most participatory of all governments, may become no more than administrative agencies of the center. Nor is political participation at the center likely to be very great, limited as it is to the election of a single executive.

The goal most likely to be encouraged by centralized federalism is economic efficiency. Here a democratically elected executive sets policies for the nation as whole. For these policies to be efficient, however, the executive must first reveal citizen preferences for public goods. While demand-revealing mechanisms can be specified to elicit true preferences, such mechanisms are themselves costly and are only guaranteed to work when citizen preferences are additive separable between income and the public goods (Laffont 1987). Nor is there any guarantee the executive will choose efficient policies even if all citizens’ preferences are known. In centralized federalism, there is no credible means for the executive to commit to such a policy. The burden for finding an efficient resource allocation falls to the election process. If elections are open so that any citizen can run for the presidency and if all citizens (more generally, all preference types) are equally capable in managing government and these management skills are public knowledge, then policies chosen by the president will be efficient in two candidate elections (Besley and Coate 1997). The intuition for this result is straightforward. In two candidate elections, citizens vote truthfully; thus, any efficient candidate can propose a policy which benefits herself and a majority of other voters and defeats any policy proposed by an inefficient candidate. If these conditions do not hold, however, and in particular if elected officials can hide their dishonesty or incompetence, then efficiency is not assured (Coate and Morris 1995). Open elections and full knowledge of the performance of candidates are required.