The purpose of this chapter is to survey the literature on federalism and draw on the new institutional economics and political science to suggest aspects of an integration of the literature and hence a more complete theory of federal performance. The literatures on the performance of federal systems divide around three central questions: (1) the economic performance of federalism; (2) its political performance; and (3) the sources of stability for federal arrangements. Although these three literatures are complementary, they remain incompletely integrated, precluding a more complete theory of the performance of federal systems, one encompassing both political and economic aspects. This chapter analyzes how federalism affects the incentives and objectives of subnational government officials. It explores the conditions under which federalism is self-enforcing and applies the framework to a discussion of the evolution of federalism in the United States since inception.