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Over the last three to four decades, decentralisation processes have advanced at a dizzying pace around the world. Discussions on governance and government performance in developing countries, and particularly in Latin America, have progressively involved questions about the role of sub-national (local and intermediate) governments in the provision of public goods and services. These discussions have not been limited to the traditional dichotomy between unitary and federal systems, but have included detailed analyses of the institutional arrangements that allow sub-national governments both the capacity and the autonomy to influence public policy outcomes.

The unitary and federal systems have traditionally been seen as two opposing and mutually exclusive alternatives for territorially structuring a country politically and administratively at the constitutional level. In unitary systems, sovereignty resides exclusively in the Nation and therefore territorial entities do not have inalienable powers, but only those delegated by the national power. In federal systems, the Nation and its constituent states or regions share sovereignty; that is, the states possess certain powers which the Nation alone cannot take away from them. Consequently, states in a federal system have some influence over national public policy as a way of protecting their shared sovereignty. For example, in Mexico and the United States, constitutional amendments must not only be approved by Congress, but also ratified by a majority (qualified majority in the United States) of state legislatures.