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Abstract

Abstract—This paper studies the role of political institutions in determining the political success of agriculture in avoiding taxation or attracting government transfers in developing and industrialized countries, respectively. The model is based on a probabilistic voting environment, where in industrialized countries rural districts are less ideologically committed than urban districts, while in developing countries urban districts are less ideologically committed than rural districts. As a consequence, in industrialized (developing) countries rural (urban) districts are pivotal in determining the coalition that obtains a majority, whereas urban (rural) districts are pivotal within the majority itself. In bargaining at the legislature, this generates a conflict between the government, who will tend to favor rural (urban) districts, and its parliamentary majority, that will be dominated by urban (rural) concerns. As district size grows and the electoral system converges to a pure proportional system, both of these biases are attenuated. Overall, an opposite nonlinear relationship between district size and agricultural subsidies on the one hand and district size and taxation on the other hand follows, i.e. in developing countries taxation of agriculture first increases and then decreases with district magnitude, while in industrialized countries agricultural subsidization first increases and then decreases with district magnitude. Moreover, the impact of district magnitude on the level of agricultural subsidization is attenuated in presidential when compared to parliamentary systems, while the level of agricultural taxation is amplified in presidential systems. Empirical results from cross-country analysis including 37 countries over 20 years mainly support our theory.

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