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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.

Suggested Citation

  • Congleton, Roger D. & Lee, Sanghack, 2009. "Efficient mercantilism? Revenue-maximizing monopoly policies as Ramsey taxation," European Journal of Political Economy, Elsevier, vol. 25(1), pages 102-114, March.
  • Handle: RePEc:eee:poleco:v:25:y:2009:i:1:p:102-114
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Thaize Challier, M.-Christine, 2010. "Socio-political conflict, social distance, and rent extraction in historical perspective," European Journal of Political Economy, Elsevier, vol. 26(1), pages 51-67, March.
    2. Javier Mejía Cubillos, 2011. "Una interpretación neoclásica del fin del Galeón de Manila," Contribuciones a la Economía, Grupo Eumed.net (Universidad de Málaga), issue 2011-09, September.
    3. Gaowang Wang & Heng-fu Zou, 2011. "Foreign Asset Accumulation, Macroeconomic Policies and Mercantilism," CEMA Working Papers 461, China Economics and Management Academy, Central University of Finance and Economics.
    4. Roger Congleton, 2013. "On the inevitability of divided government and improbability of a complete separation of powers," Constitutional Political Economy, Springer, vol. 24(3), pages 177-198, September.
    5. Roger D. Congleton, 2015. "The Logic of Collective Action and Beyond," Working Papers 15-23, Department of Economics, West Virginia University.
    6. Roger Congleton, 2015. "The Logic of Collective Action and beyond," Public Choice, Springer, vol. 164(3), pages 217-234, September.
    7. Balding, Christopher, 2011. "A Re-examination of the Relation between Democracy and International Trade The Case of Africa," WIDER Working Paper Series 059, World Institute for Development Economic Research (UNU-WIDER).
    8. Mark Koyama, 2010. "The political economy of expulsion: the regulation of Jewish moneylending in medieval England," Constitutional Political Economy, Springer, vol. 21(4), pages 374-406, December.
    9. Wang, Gaowang & Zou, Heng-fu, 2011. "The Effects of Macroeconomic Policies in a Mercantilist Economy," MPRA Paper 73305, University Library of Munich, Germany, revised 25 Aug 2016.
    10. repec:elg:eechap:15325_4 is not listed on IDEAS

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