In this book, Erik Wibbels explores the “federal collective action problem” (pp. 47, 62). Because in federal countries national and regional leaders answer to different constituencies, their electoral interests and preferences toward socially costly reforms might conflict. Market economic reforms constitute one type of such measures. As Wibbels argues, in crisis-ridden federations, “economic reforms takes [sic] on the quality of a public good requiring the individual regions to cooperate, whereas it is more rational for each career-oriented politician to avoid the costs associated with austerity” (p. 27). National leaders concerned with macroeconomic stability want market economic reforms implemented in the regions, but regional leaders have an incentive to free-ride and adopt fiscally expansionary policies. The book suggests that “many market reform policies are a function of a constant process of bargaining between national and regional leaders struggling for political survival” (p. 5). Moreover, it argues that “[t]he degree to which the two sets of actors [national and regional leaders] conflict depends on four crucial factors: the electoral interests that each brings to the game, a shared intergovernmental fiscal system, the manner in which regional interests are represented in national policy making, and the levers of partisan influence national leaders have over subnational politicians” (pp. 5–6). The author proposes that fiscally autonomous regions with competitive party systems are more likely to converge with the national government's interests on market economic reforms; and that national electoral coattails are a more effective means for disciplining regional leaders than partisan harmony through centrally dispensed carrots and sticks (pp. 38–39).

After laying a groundbreaking theoretical framework in Chapters 1 and 2, Federalism and the Market presents cross-sectional time-series statistical models of macroeconomic outcomes in non–Organization for Economic Cooperation and Development countries in Chapter 3 and in developing federal countries in Chapter 4. A single country-case in-depth statistical and qualitative analysis is made of intergovernmental bargaining dynamics in Argentina in Chapters 5 and 6, and a small-n Comparison of three Argentine provinces, Córdoba, Mendoza, and Río Negro, is included in Chapter 7. The combination of methodologies and the shifting in levels of analysis (from macro to micro comparisons) is used very effectively to test different parts of the main argument. The research design, in this regard, is ingenious and exemplary.

In fact, it is hard to find flaws (other than editorial) in this carefully crafted and well-argued book. The shortcomings, therefore, are related to what is missing or inconclusive, rather than faulty. Three elements bear mention. First, given the ongoing debate in the literature about the effects of federalism on ethnic conflict and civil war, it is surprising that no measure of such a dimension was added to the statistical models that compare macroeconomic outcomes across developing countries and across developing federations. What is the effect of federalism on fiscal balance, inflation, and debt once ethnic conflict is included in the equation? Wibbels recognizes that there has been a “spike in ethnic conflict common to many nations across the globe” (p. 240) and that one of the crucial aspects in studying federations is to determine whom they represent and how they represent them (p. 244). Hence, it is not clear why no measure of ethnic conflict or diversity was included in the statistical models in Chapters 3 and 4.

Second, while the book persuasively reveals the problems associated with the achievement of partisan harmony via hierarchical carrots and sticks, the claim that national electoral “coattails generate intergovernmental policy coordination via incentive compatibility” (p. 39) remains untested. Argentina's national leaders only used carrots and sticks in aligning subnational politicians, and the book does not provide evidence of how national coattails work in other federations of the developing world.

Third, the argument that competitive regional politics leads to better macroeconomic outcomes is not fully supported by the evidence provided. This claim is supported by the analysis of the Mendoza case, in Chapter 7. However, the descriptive data regarding average current deficits of Argentine provinces (p. 181) shows that only San Luis, La Pampa, and Neuquén had fiscal surpluses in the period under consideration (1984 to 1998). Paradoxically, these provinces (San Luis and La Pampa, in particular) are among the least politically competitive of Argentina. In each of them, the same party (and in the case of San Luis the same governor) ruled during the entire 15-year period. Furthermore, part of the statistical analysis (p. 186) shows that political competitiveness increased wage spending between 1984 and 1988. This could reflect on the poor quality of Argentina's fiscal data for that period.

Yet the author's interpretation, that this might have been due to the national executive's attempt to selectively target the politically competitive provinces by transferring more resources to them (p. 187), runs counter to the claim made earlier in the book (and in other works) that federal transfers at the time were mostly directed to Peronist provinces (which already had expansionary spending) as bailouts and for gatherng political support in a divided legislature (pp. 138–41).

In all, the book's strengths and crucial contributions far outweigh the occasional missing or inconclusive piece of evidence. It contributes to the literature on market reforms by stressing the important role that subnational governments play in negotiating, implementing, or halting market reforms. It also makes important contributions to the literature on fiscal federalism, by showing that there is a continuum from market-preserving to market-distorting federations, dependent on intergovernmental fiscal and political institutions. It also analyzes federations of the developing world, which have until now earned less scholarly attention than they deserve. Finally, the book also contributes to the broader political science literature by unpacking the preferences of bargaining actors and showing how the divergence or convergence of interests can shape crucial political and economic institutions, which in turn have a significant impact on economic outcomes. Federalism and the Market is bound to leave a lasting imprint.

Wibbels concludes with a rather pessimistic prognosis about the economic and political future of federations in the developing world (Chapter 8). He also recommends increasing the regions' own-revenues, instead of tightening budget constraints. However, if, as he writes, “[i]t is difficult to imagine the survival of ethnically and religiously divided India or Nigeria as we currently know them absent the institutions of federalism” (p. 243), then despite its fiscal shortcomings, federalism, as well as the horizontal redistribution from rich to poor regions, may be as good institutional arrangements as can be hoped for to keep ethnically divided countries together and economically poor regions afloat.