Extractive States: The Case of the Italian Unification

Despite the huge evidence documenting the adverse impact of extractive policies, we still lack a framework that identifies their determinants. Here, we lay out a two-region, two-social class model for thinking about this issue, and we exploit its implications to propose a novel account of the present-day economic divide between North and South of Italy. In contrast with the extant literature, we document that its opening is the result of the region-specific policies selected between 1861 and 1911 by the elite of the Kingdom of Sardinia, which annexed the rest of Italy in 1861. To elaborate, pre-unitary regional revenues from land property taxes per capita and railway diffusion are only driven by the contemporaneous region's farming productivity but not by the region's political relevance for the Kingdom of Sardinia's elite, whereas the opposite is true for the post-unitary ones. Moreover, tax-collection costs, the regional political relevance, and tax distortions shaped the growing North-South gap in post-unitary development, culture, and literacy. Crucially, our framework clarifies the incentives of dominating groups in other political and economic unions, e.g., post-Civil War USA and EU.