Provincial Protectionism

26 Pages Posted: 1 Jun 2003  

Konstantin Sonin

University of Chicago - Irving B. Harris Graduate School of Public Policy Studies; Higher School of Economics; Centre for Economic Policy Research (CEPR)

Date Written: December 2005

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.

Keywords: Federalism, Positive Political Economics, Transition, Development

JEL Classification: P2, P3, H77

Suggested Citation

Sonin, Konstantin, Provincial Protectionism (December 2005). Available at SSRN: https://ssrn.com/abstract=403960 or http://dx.doi.org/10.2139/ssrn.403960

Konstantin Sonin (Contact Author)

University of Chicago - Irving B. Harris Graduate School of Public Policy Studies ( email )

1155 East 60th Street
Chicago, IL 60637
United States

Higher School of Economics ( email )

20 Myasnitskaya street
Moscow, 119017
Russia

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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