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Provincial protectionism

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  • Sonin, Konstantin

Abstract

In a federal state with weak political institutions, constituent units might protect their enterprises from enforcement of federal taxes. The effectiveness of such protection depends on the ability of local politicians to extract rents from enterprises. They can do so when local monopolies can be effectively sustained and electoral competition is weak. To analyze effects of political decentralization in a country with powerful regional industries, we build a simple general-equilibrium model where local politicians' electoral positions are levels of competition in the regional market, heterogenous firms provide campaign finance and compete in the labor market, and voters care about their wages, but could be influenced by campaign spending.

Suggested Citation

  • Sonin, Konstantin, 2010. "Provincial protectionism," Journal of Comparative Economics, Elsevier, vol. 38(2), pages 111-122, June.
  • Handle: RePEc:eee:jcecon:v:38:y:2010:i:2:p:111-122
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    More about this item

    Keywords

    Federalism Positive political economics Transition Development Monotone comparative statics;

    JEL classification:

    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • P20 - Economic Systems - - Socialist Systems and Transition Economies - - - General
    • P30 - Economic Systems - - Socialist Institutions and Their Transitions - - - General

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