Firms and Social Policy in the Post-Communist Bloc: Evidence from Russia
When does business support the expansion of social policy in the developing world? Existing work on managers preferences has tended to concentrate on the developed world, where governments can credibly commit to policy, tax evasion is constrained, and mechanisms exist to hold the bureaucracy accountable for policy implementation. In this paper, I relax these assumptions, arguing that weak institutions create opportunities for some firms to shift costs onto others: making social policy more attractive. I argue that firms with political connections are uniquely positioned to benefit from subsidies and property rights protection, which decreases the cost of social policy, while firms with low visibility can evade taxes and free-ride off universalistic social policy. I test this argument using a survey of 666 firms in 10 Russian regions.
Previous Version: Higher School of Economics Research Paper No. WP BRP 87
BOFIT Discussion Paper 7 2018
Skipping out on the Check: Institutional Quality, Tax Evasion, and Individual Preferences for Social Policy
Who supports social policy in settings where institutions are weak? Existing work on social policy preferences focuses on the developed world, where governments can credibly commit to policy, tax evasion is constrained, and governments are accountable. In this paper, I relax these assumptions. I argue that weak accountability under poor institutions allow government officials to expend less effort to collect social policy contributions, decreasing expected revenues. For most, this is akin to a dead-weight cost that saps support for redistribution. For those with a comparative advantage in tax evasion, however, this allows for free-riding on the contributions of others and decreases the costs of social policy. As institutional quality declines and tax evasion becomes easier, individuals with a comparative advantage in tax evasion should therefore be more likely to support redistribution. I test this argument using public opinion data from a survey of 28,000 individuals in 28 post-communist countries.
Tax Evasion, Income, and Support for Redistributive Social Policy: Evidence from Survey and Laboratory Experiments
with Sarah Wilson-Sokhey (University of Colorado, Boulder)
How do poorly enforced tax systems affect preferences for redistribution? Existing work has largely overlooked how poorly functioning institutions influence preferences over this central state function. We argue that heterogeneity in tax enforcement creates both winners and losers, leading to under-explored cleavages in support for redistribution. Those with a comparative advantage in tax evasion and high income benefit most by lowering the relative costs of redistribution, making them more supportive. We use an original survey experiment to show that perceptions of pervasive tax evasion reduce support for social benefits. We then test our central argument using laboratory experiments simulating earned income and heterogeneity in tax evasion. We find that high earners prefer more redistribution when they can under-report income but only when the ability to evade taxes is heterogeneous. Our results suggest a causal link between institutional quality and preferences for redistributive social policy across individuals and within income groups.
Uncertainty as a Factor in Investment Decisions: The Case of the Russian Federation’s Regions
with Irina Levina (NRU – HSE), Andrei Yakovlev (NRU – HSE), and Gregory Kisunko (World Bank)
This paper argues that although the bulk of the literature tends to focus on regulatory uncertainty stemming from formal practices, uncertainty that comes from unpredictable informal practices surrounding regulation is an underexplored additional form of regulatory uncertainty. The paper uses the results of empirical analysis of several unique firm-level data sets to argue that firms in Russian institutional environments adapt to informal practices of business-government interactions, so long as these practices are predictable. The paper draws a distinction between differences in levels of relatively well-ordered (and often centralized) and therefore predictable corruption—a predictable component of the cost of doing business—and variation in experiences with corruption, which often results from decentralized, unconstrained (“administrative”) corruption and the rent-seeking incentives of lower level officials. It argues that a significant obstacle to investment decisions at the regional level is not so much formal or informal rules per se, but lack of predictability of their application. It also examines in-country inconsistency in property rights enforcement as another source of underexplored regulatory uncertainty tied to informal practice. Unlike administrative corruption, inconsistent property rights enforcement is a fundamental, existential threat to businesses. To test this hypothesis, the paper draws on a measure that captures private “raiders'” attacks on firms—hostile, often violent takeovers of firms by outsiders aided and often abetted by law enforcement agencies. The paper argues that the greater is the number of raider attacks for a given region, the greater is the uncertainty and the less likely is investment.
Policy Research Working Paper. WPS. World Bank , 2016. No. 7806
Consultation and Policy Attribution in Hybrid Regimes: Evidence from Russia
with R. Smyth (Indiana University, Bloomington), A. Zakharov (NRU – HSE), and E. Borisova (NRU – HSE)
Can citizens assign responsibility for controversial policies imposed by their authoritarian governments? Earlier work (Powell 2000) suggests that citizens in authoritarian regimes cannot assign responsibility for individual politics beyond the leader. More recent work demonstrates that these citizens can and do assign responsibility to individual leaders, even in complex decision environments that span a range of political institutions and different levels of government. Yet, the capacity to assign blame is shaped by regime strategies that rely on consultation and framing to deflect blame toward lower level officials or institutional actors. We test these theories using individual-level survey data to explore citizens’ responses to top-down policy initiatives of Russia’s authoritarian state, focusing on housing and pension reform. By exploiting a quasi-natural experiment in assignment to the housing reform, we are able to highlight the ways in which consultation shapes assignment of responsibility for policies that deploy this strategy but not others. The results show that citizens’ capacities vary across individuals and across specific policies in response to state strategies to consult with those most affected by specific policy initiatives.
Redistributive policy and redistribution preferences: The effects of Moscow redevelopment program
with A. Zakharov (NRU – HSE)
Do prior experiences with social policy programs shape subsequent attitudes towards redistribution? We study a unique dataset of 1400 Moscow residents in order to estimate the effect of participating in a government-sponsored redevelopment program on preferences for redistributive social policy. We find that there is a positive effect: Individuals in buildings slated for redevelopment are more likely to agree that government should reduce income differences between rich and poor, provide for unemployed, and provide housing to everyone who needs it. We believe that the primary channel is through increased trust in the govenrment. Our results suggest yet another pathway the copersistence of redistribution preferences and redistributive state policies.