Do power sharing institutions such as federalism and proportional representation (P.R.) mitigate the potentially negative effects of ethno-linguistic fractionalization on quality of government? Numerous empirical studies have shown the negative effects of ethno and linguistic heterogeneity on indicators of government quality, such as corruption, bureaucratic impartiality, and institutionalized democracy. Moreover, many studies have examined the effects of various political institutions, such as federalism and electoral system on government performance and corruption and found mixed results. Yet this study seeks to appropriately join the two sets of empirical studies. Building on Lijphart’s (1984) consociational theory of power sharing institutions, I seeks to empirically test the effectiveness of vertical (federalism) and horizontal (P.R.) power sharing in both homogenous and heterogeneous states using a variety of government quality indicators for robustness and generalizability. I employ a sample of over 120 states from 1993-2004 and use a variety of empirical methods and data to test the notion that power-sharing improves government quality when heterogeneity is high. The empirical results demonstrate that while differences in government quality are minimal when comparing federal and unitary states at less fractionalized levels, the institution of federalism proves extremely effective in producing significantly higher scores of government quality in highly fractionalized societies for almost every indicator using a number of multiple data sources. As for horizontal power sharing, while P.R. states report better government scores than countries which employ a method of plurality, this difference is negligible in cases of high fractionalization when controlling for federalism. The findings strongly support one of Lijphart’s claims to the effectiveness of federalism in providing better government quality for diverse populations than those of centralized constitutions
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