Determinants of state capacity in the Argentinian provinces

Abstract

Why do Argentine provinces differ in their state capacity? A recent family of models predicts a positive relationship between democracy and extractive capacity, and a negative relationship between income inequality and extractive capacity (Besley y Persson 2009; 2011; Cárdenas 2010). These hypotheses are tested at the subnational level of a federal country: the Argentine provinces in the period 1991-2001. Results show that (i) the level of subnational democracy has a negative effect on the extractive capacity of local governments, (ii) income inequality has a negative effect on extractive capacity, and (iii) the effect of federal transfers on extractive capacity is not statistically significant. From a theoretical point of view, the most important result is the negative association between the level of subnational democracy and the level of extractive capacity: this raises some doubts on most of the recent literature on the subject and opens the possibility of an “olsonian logic” (Olson 1993): governors with less restrictions could have an “encompassing interest” in their subnational polities.