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Efficient mercantilism? Revenue-maximizing monopoly policies as Ramsey taxation

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  • Congleton, Roger D.
  • Lee, Sanghack

Abstract

The economics literature on mercantilism tends to emphasize gold hoarding and external barriers to trade as defining characteristics. Medieval institutions, however, included a host of internal barriers to trade as well as external ones, and monopoly privileges and high offices were often for sale. In this paper, we analyze how a stable unitary government's regulatory policies may be affected by revenues and other services generated by the efforts of rent seekers. Competition for monopoly privilege can be a significant source of government revenue that augments tax revenues, especially in settings in which collecting ordinary tax revenues is problematic. A revenue-maximizing government encourages greater monopolization than is compatible with economic efficiency, but sells monopoly privileges in a manner that promotes innovation and partially accounts for the deadweight losses associated with monopolized markets. Our analysis provides a possible public finance explanation for relatively successful authoritarian states that have relatively little corruption, but many internal and external barriers to trade.

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Bibliographic Info

Article provided by Elsevier in its journal European Journal of Political Economy.

Volume (Year): 25 (2009)
Issue (Month): 1 (March)
Pages: 102-114

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Handle: RePEc:eee:poleco:v:25:y:2009:i:1:p:102-114

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Web page: http://www.elsevier.com/locate/inca/505544

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Keywords: Mercantilism Rent seeking Endogenous rent seeking Rent extraction Leviathan Corruption Anti-trust Dictatorship Regulation Public choice Innovation Patents Interest groups Encompassing interest Monopoly Public finance;

References

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Citations

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Cited by:
  1. Roger D. Congleton, 2013. "On the Inevitability of Divided Government and Improbability of a Complete Separation of Powers," Working Papers 13-04, Department of Economics, West Virginia University.
  2. Balding, Christopher, 2011. "A Re-examination of the Relation between Democracy and International Trade The Case of Africa," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  3. Gaowang Wang & Heng-fu Zou, 2011. "Foreign Asset Accumulation, Macroeconomic Policies and Mercantilism," CEMA Working Papers, China Economics and Management Academy, Central University of Finance and Economics 461, China Economics and Management Academy, Central University of Finance and Economics.
  4. Javier Mejía Cubillos, 2011. "Una interpretación neoclásica del fin del Galeón de Manila," Contribuciones a la Economía, Grupo Eumed.net (Universidad de Málaga), Grupo Eumed.net (Universidad de Málaga), issue 2011-09, September.
  5. Mark Koyama, 2010. "The political economy of expulsion: the regulation of Jewish moneylending in medieval England," Constitutional Political Economy, Springer, Springer, vol. 21(4), pages 374-406, December.
  6. Thaize Challier, M.-Christine, 2010. "Socio-political conflict, social distance, and rent extraction in historical perspective," European Journal of Political Economy, Elsevier, Elsevier, vol. 26(1), pages 51-67, March.

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