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Provincial Protectionism

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  • Sonin, Konstantin

Abstract

In a federal state, political leaders of constituent units might protect their enterprises from the federal center (e.g., allowing them not to pay federal taxes). The effectiveness of such protection depends crucially on the ability of local authorities to extract rents from enterprises. They can easily do so, if there are a small number of enterprises with large employment, and local monopolies can be effectively sustained. They cannot do it so easily if regional industry is competitive, political opposition is strong, and the federal center has enough means to enforce payment of taxes. We build a simple model to argue that it is the industrial structure of constituent units that determines political relations between them and the federal centre. The theory is supported by the recent experience of Russia, China, and Argentina.

Suggested Citation

  • Sonin, Konstantin, 2003. "Provincial Protectionism," CEPR Discussion Papers 3973, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:3973
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    JEL classification:

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

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