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State Capture in a Federation

Author

Listed:
  • Evgeny Yakovlev
  • Ekaterina Zhuravskaya

    (CEFIR / New Economic School)

Abstract

The paper provides evidence that the welfare effect of decentralization in countries with weak democratic institutions depends on the multi-jurisdictional vs. single-jurisdictional span of interest group lobbies. Weak democracy leads to capture of local authorities. Captors who have multi-jurisdictional scope internalize inter-jurisdictional externalities of local policies to a larger extent than both the captors with interests in a single jurisdiction and not captured local politicians. Particularly, multi-jurisdictional captors lobby for lower inter-regional trade barriers than single-jurisdictional captors. Based on case study evidence and econometric analysis of a unique data set from Russia, we show that capture by multiregional interest groups leads to significantly better performance of firms with no political connections in the neighboring regions and worse performance of such firms in the captured region compared to capture by regional industrial interests with similar political power or situation of no capture. Our findings have implications for international trade as well: lobbying by multinationals leads to lower protectionism compared to lobbying by national corporations.

Suggested Citation

  • Evgeny Yakovlev & Ekaterina Zhuravskaya, 2006. "State Capture in a Federation," Working Papers w0093, New Economic School (NES).
  • Handle: RePEc:abo:neswpt:w0093
    as

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    More about this item

    JEL classification:

    • P26 - Economic Systems - - Socialist Systems and Transition Economies - - - Political Economy
    • P27 - Economic Systems - - Socialist Systems and Transition Economies - - - Performance and Prospects
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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