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State Capture in a Federation

  • Evgeny Yakovlev
  • Ekaterina Zhuravskaya


    (CEFIR / New Economic School)

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.

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Paper provided by Center for Economic and Financial Research (CEFIR) in its series Working Papers with number w0093.

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Length: 36 pages
Date of creation: Jan 2006
Date of revision:
Handle: RePEc:cfr:cefirw:w0093
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  16. Hongbin Cai & Daniel Treisman, 2005. "Does Competition for Capital Discipline Governments? Decentralization, Globalization, and Public Policy," American Economic Review, American Economic Association, vol. 95(3), pages 817-830, June.
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  19. Massimo Bordignon & Luca Colombo & Umberto Galmarini, 2003. "Fiscal Federalism and Endogenous Lobbies' Formation," CESifo Working Paper Series 1017, CESifo Group Munich.
  20. Sonin, Konstantin, 2010. "Provincial protectionism," Journal of Comparative Economics, Elsevier, vol. 38(2), pages 111-122, June.
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  24. Musgrave, Richard A, 1969. "Theories of Fiscal Federalism," Public Finance = Finances publiques, , vol. 24(4), pages 521-36.
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