Daniel Treisman

A normal country: Russia after communism

During the 1990s, Russia underwent an extraordinary transformation from a communist dictatorship to a multi-party democracy, from a centrally planned economy to a market economy, and from a belligerent adversary of the West to a cooperative partner. Yet a consensus in the US circa 2000 viewed Russia as a disastrous and threatening failure, and the 1990s as a decade of catastrophe for its citizens. Analyzing a variety of economic and political data, we demonstrate a large gap between this perception and the facts. In contrast to the common image, by the late 1990s Russia had become a typical middle-income capitalist democracy.

State Corroding Federalism

Competition among local governments in a decentralized political system is often thought to discipline lazy or corrupt officials, improving public good provision and increasing welfare. Some scholars note possible distortions due to spillovers or a ‘race-to-the-bottom’, but suggest that central transfers or regulations can remedy these. Both arguments take for granted a framework of constitutional order in which the central government can collect taxes, allocate transfers, and enforce regulations autonomously. But what if it can’t? We show that if central enforcement capacity is endogenous, interjurisdictional competition may itself erode the center’s ability to channel competition in welfare-enhancing directions. Regional governments may compete for capital by shielding firms from central tax collectors, bankruptcy courts, or regulators. The equilibrium result is weaker central law enforcement and usually lower welfare: interjurisdictional competition corrodes the state. We illustrate with three examples—from Russia, China, and the US—of cases in which such competition apparently encouraged subnational politicians to help firms evade central taxes or regulations.

Does Competition for Capital Discipline Governments? Decentralization, Globalization, and Public Policy

Competition among countries—or regions within them—to attract mobile capital is often thought to discipline their governments, motivating them to invest more in infrastructure, reduce waste and corruption, and spend less on non-productive public goods. The result should be convergence on business-friendly policies. We argue that this requires an assumption—units start out very similar—that is often unrealistic. If units are heterogeneous (in natural resources, geographical location, inherited human capital or infrastructure), capital mobility often weakens discipline on the poorlyendowed units. This may help explain disappointing results of liberalizing capital flows within Russia and sub-Saharan Africa. (JEL F36, H73, H87)

The Politics of Intergovernmental Transfers in Post-Soviet Russia

In Russias lingering constitutional crisis, struggles over fiscal politics have taken on a broader institutional significance – at times even threatening to undermine the federal state. This article studies the evolving fiscal relationship between Moscow and the regional governments in the early post-Soviet period. To explain why some regions currently receive large net transfers (subsidies, grants, other benefits) from the centre while others pay large net taxes, net central transfers per capita have been regressed on a range of predictors reflecting social ‘need’, preferences of central politicians (electoral interests, pork barrel allocation, policy objectives) and lobbying capacity of regional governments. The most significant turn out to be three bargaining power variables that signal regional discontent and credible resolve to threaten economic and constitutional order – a low vote for President Yeltsin in the 1991 election, an early declaration of sovereignty and the incidence of strikes in the previous year.

Political Decentralization and Economic Reform: A Game-Theoretic Analysis

How does the degree of political decentralization in a state affect the outcomes of economic reform programs? Economic and political theories-from Tiebout to Weingastemphasize advantages of decentralization. Yet, recent experience-from Yugoslavia and Russia to Argentina and Brazil-suggests that decentralization may at times interact with economic liberalization to exacerbate fiscal, macroeconomic, or even territorial instability. This paper suggests a logic that can account for such cases. A simple, game-theoretic model is used to analyze interactions between central and local officials in a two-level state with significant cultural divisions. It finds that decentralization or local democratization increases the level of central redistribution required to prevent spirals of regional revolt. Consequences of economic reforms that have characteristics of public goods depend critically on the initial levels of cultural division and decentralization. In relatively centralized or homogeneous states, such reforms lead to virtuous cycles of growth and increased revenues and state capacity. In decentralized and deeply divided ones, the same reforms can lead to vicious cycles of higher redistribution, economic inefficiency, and political instability.

Explaining fiscal decentralisation: geography, colonial history, economic development, and political institutions

ABSTRACT Why are some countries more fiscally decentralised than others? Scholars have attributed such differences to geographical, cultural, institutional and economic factors. Using a dataset of 66 countries, I test various hypotheses. The results suggest territorially larger–but not necessarily more populous–countries are more fiscally decentralised. Former colonies of Spain or Portugal are more centralised, while former Soviet states are particularly decentralised. Economic development leads to greater expenditure decentralisation, but affects revenue decentralisation less, rendering local governments in richer countries more dependent on central transfers. Federal states are more decentralised, in part because federalism is more common among more developed countries. Ethnolinguistic divisions did not correlate with decentralisation. Neither the level nor duration of democracy had any clear effect. Longitudinal analysis suggested democratisation is associated with a significant but tiny increase in decentralisation.

Death and prices

Most experts agree that alcohol abuse has been a major cause of Russia’s soaring mortality rate. But why have ever more Russians been drinking themselves to death? Some attribute this to despair in the face of painful economic change. I present evidence that, in fact, the surge in alcohol-related deaths – and premature deaths in general – was fuelled by a dramatic fall in the real price of vodka, which dropped 77 percent between December 1990 and December 1994. Variation in vodka prices – both over time and across Russia’s regions – closely matches variation in mortality. Although market competition and weak excise collection help explain the fall in prices, the main reason appears to be populist price regulation during inflationary periods.

Fiscal Games and Public Employment: A Theory with Evidence from Russia

Why do some governments--both in different countries and in regions within those countries--employ more workers than others? Existing theories focus on the level of economic development, political redistribution, and social insurance. But they raise additional puzzles and do not account for all evidence or for a global trend toward decentralization of public employment. The authors propose a new theory, inspired by Russias recent experience, that locates one motive for subnational public employment growth in a political and fiscal game between central and subnational governments. In countries with weak legal systems, local and regional officials may deliberately set their employment levels beyond their fiscal capacity, prompting bailouts from the central government, which fears the political cost to it if wage arrears accumulate and provoke strikes. The authors model the logic of such brinkmanship, derive several propositions, and show that they--and the models assumptions--fit empirical evidence from Russia in the 1990s. Deficiencies of that countrys overstaffed, underequipped, irregularly paid, ineffective, and strike-prone public sector appear to result in part from a system of dysfunctional incentives created by the interaction of electoral pressures with the system of fiscal federalism. The authors suggest parallels with Latin American countries such as Argentina and Brazil.

Fiscal Decentralization, Governance, and Economic Performance: A Reconsideration

In countries with tax-sharing systems, assigning local governments a large share of locally generated revenues is often thought to promote economic development. The more local officials benefit from local economic activity, the more supportive of business and less corrupt they should be, resulting in higher output. Some attribute Chinas rapid growth to its high local retention rates and Russias 1990s stagnation to the central clawback of local revenues. I show that such arguments ignore an important actor in the game - the central government. If increasing the local tax share improves incentives for local authorities, it worsens them for central officials. The net effect on output is indeterminate. Copyright 2006 Blackwell Publishing Ltd.

Fiscal Redistribution in a Fragile Federation: Moscow and the Regions in 1994

Despite mass privatization and market reforms in Russia, the central state continues to redistribute considerable amounts of money between the country’s eighty-nine regions. About 4.3 per cent of gross domestic product (GDP) – or 31 per cent of federal tax revenues – was transferred back to the budgets of the regions in 1994. 1 The average region recovered about 45 per cent of the taxes it remitted to the centre in different kinds of budget transfers, up from 37 per cent in 1993. 2 But this understates the true scale of redistribution. In addition, many federal spending programmes, while not explicitly targeted at particular regions, had a geographically concentrated impact. Understanding the basis of this redistribution is important for several reasons. First, future rates of growth and productivity will depend on whether such transfers are channelling capital to more efficient and pro-reform constituencies or are softening budget constraints and protecting loss-making enterprises and industrial sectors. Secondly, such redistribution has important implications for state stability. Since 1990, more than a third of Russia’s provinces have declared sovereignty, demanded greater autonomy, unilaterally reduced tax payments to the centre or demanded control over natural resources and export rights. The war in Chechnya is the most disastrous example of where such conflicts can lead. In almost all these disputes, fiscal transfers have been a key focus of contestation. 3