Extractive States: the Case of the Italian Unification
Abstract: Despite the huge evidence on the adverse impact of extractive policies, we still lack a framework that identifies their determinants. Here, we lay out a two-region, two-social class model for thinking about this issue, and we exploit its implications to identify the causes of the opening of the present-day divide between North and South of Italy. Differently from the extant literature, we document that it arose because of the region-specific policies selected between 1861 and 1911 by the elite of the Kingdom of Sardinia, which annexed the rest of Italy in 1861. While indeed pre-unitary land property tax revenues and railway diffusion were shaped by each region's farming productivity but not by its political relevance for the Piedmontese elite, the opposite was true for the post-unitary ones. Moreover, post-unitary tax distortions and the severity of the remaining extractive policies---captured by the region's taxation capacity and political relevance---determined the North-South gaps in culture, literacy, and development but not that in the manufacturing industry value added. Consequently, extraction neither eased the formation of an unitary market nor favored industrialization. Our results remain robust to considering fixed region and time effects and the structural conditions differentiating the two blocks in 1861, i.e., pre-unitary inclusiveness of political institutions, land ownership fragmentation, and inputs. Crucially, our framework clarifies the incentives of dominating groups in other unions, e.g., post-Civil War USA and EU.