---
title: "Race to the Bottom in Federalism Explained | Model Diplomat"
description: "Race to the Bottom in Federalism refers to sub-national governments lowering standards to attract investment, impacting labor and environmental protections."
url: "https://modeldiplomat.com/learn/glossary/race-to-the-bottom-federalism"
---

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Model Diplomat Research Team · Last reviewed June 22, 2026

TL;DR

- A race to the bottom is a process in which competing sub-national governments progressively lower regulatory standards, taxes, or welfare provisions to attract mobile capital, firms, or labour.
- How does a race to the bottom differ from competitive federalism?
- What mechanism prevents a race to the bottom in a federation?
- Is there empirical proof that the race to the bottom actually occurs?
- Does competition between states ever produce a race to the top?

[Civil Service & Diplomatic Exams](https://modeldiplomat.com/learn/civil-services/glossary)Updated June 22, 2026

A race to the bottom is a process in which competing sub-national governments progressively lower regulatory standards, taxes, or welfare provisions to attract mobile capital, firms, or labour.

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In 2014, Rajasthan relaxed its Industrial Disputes and Factories Acts to ease retrenchment, prompting Madhya Pradesh and Haryana to enact similar labour-law dilutions—an episode cited as evidence of a race to the bottom in Indian competitive federalism.

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