Federalism has generally been characterized as a system of government that is friendly to liberty. It is not obvious, though, why this should be so. Federalism is a form of government where citizens simultaneously reside in at least two governments, each of which has independent authority to tax and to regulate. By contrast, in a unitary form of government citizens face only one government with independent authority to tax and regulate. At first glance, it would seem a bit strange to claim that liberty is more secure when citizens are members of two governments with independent authority than when they are members of only one such government. The relationship between federalism and liberty turns out to be a complex one, and one that is capable of working in either direction. Whether federalism supports or erodes liberty depends on importantly on the institutional framework within which federalist governance takes place. The essays in Federalist Government in Principle and Practice examine this institutionalist theme from both theoretical and practical perspectives.

Competition among governments at the same level or with similar responsibilities is commonly referred to as the horizontal competition or inter-jurisdictional competition in the literature on economics and political science. A related concept of intergovernmental or vertical competition refers to competition among governments with different levels and types of responsibilities e.g. among federal, state and local governments.Our concern in this paper is with the inter-jurisdictional competition (interregional or local-local competition) alone and its implications for the federal government's role in securing an economic union or an internal common market. Competition among state and local governments is quite commonplace in most federal systems. It occurs through lobbying for employment generating and against hazardous waste location of federal or private sector projects including military bases, encouragement of foreign and domestic investment, providing incentives and subsidies for attracting capital and labor, providing public infrastructure to facilitate business location, providing a differentiated menu of local public services, one-stop windows for licensing and registration and endless other ways of demonstrating an open door policy for new capital and skilled workforce. State and local governments also compete among themselves in erecting barriers to trade and tariff walls to protect local industry and business. They also try to out-compete among themselves in exporting tax burdens to non-residents where feasible. This paper examines the pros and cons of inter-jurisdictional competition in a federal system and examines the ways the federal government can play a supporting role to accentuate the positive aspects of this competition while dealing with any negative fallout of unbridled competition.