Unconditional Transfers Are Not Oil: The Economic Foundations of Subnational Undemocratic Regime Reproduction

Abstract

Extant research on rentierism claims that oil royalties and unconditional transfers are among the main factors sustaining subnational undemocratic regimes (SURs). This article claims that these revenues are insufficient to economically reproduce SUR, as subnational rentier states generally overspend beyond their means. Drawing on evidence from Argentina, we identify two pathways to SUR reproduction. First, rulers in resource-rich provinces rely on 'hidden rents' from local extractive industries to sustain long-term spending. Second, rulers in resource-poor provinces heavily subsidised by fiscal institutions resort to discretionary grants from presidents to reproduce their political regimes.

Intergovernmental Transfers Reduction Policy and Flypaper Effect: Case of Covid-19 Pandemic in Indonesia

“…The second one (DBH) also happens to have been redistributed accordingly by the central government to rejuvenate local environments, e.g., DBHnatural resources. Diaz-Rioseco (2021) argues that rich in natural resources districts most likely more profitable as they earn hidden rents which contribute to be the main source to patronage financing and governance. Thus, the elimination of unconditional transfer's dependence on capital spending is expected.…”