Is there the rule of law in Russia? The case of corporate raiding: a note

Our leaders constantly proclaim that Russia is building a democratic state and moving along the road to the rule of law in the market economy. The rhetoric is fine, but what is really happening? In order to answer this question I would like to tackle the problem of raiding in the Russian economy, the problem most acute, urgent and illustrative of the present state of affairs. First, I'd introduce the definitions, then describe the process going on in Russia and then try to make some tentative conclusions regarding the future trends

Incentives to provide local public goods: fiscal federalism, Russian style

Based on a unique data set on Russian city budgets, this paper shows that revenue sharing between regional and local governments provides local governments with no incentive to increase tax base or provide public goods. Any change in local government’s own revenues is almost entirely offset by changes in shared revenues. This leads to governmental over-regulation of private businesses. It is shown that fiscal incentives are a determinant of the formation of private business and the efficiency of public goods provision. The Russian federalism is compared to the Chinese federalism, where fiscal incentives reputedly are stronger in many provinces.Federalism; Russia; Local government; Transition

State Capture in a Federation

The paper provides evidence that the welfare effect of decentralization in countries with weak democratic institutions depends on the multi-jurisdictional vs. single-jurisdictional span of interest group lobbies. Weak democracy leads to capture of local authorities. Captors who have multi-jurisdictional scope internalize inter-jurisdictional externalities of local policies to a larger extent than both the captors with interests in a single jurisdiction and not captured local politicians. Particularly, multi-jurisdictional captors lobby for lower inter-regional trade barriers than single-jurisdictional captors. Based on case study evidence and econometric analysis of a unique data set from Russia, we show that capture by multiregional interest groups leads to significantly better performance of firms with no political connections in the neighboring regions and worse performance of such firms in the captured region compared to capture by regional industrial interests with similar political power or situation of no capture. Our findings have implications for international trade as well: lobbying by multinationals leads to lower protectionism compared to lobbying by national corporations.

Decentralization and political institutions

Does fiscal decentralization lead to more efficient governance, better public goods, and higher economic growth? This paper tests hypotheses posed by theoretical literature that the results of decentralization depend on features of political institutions. Using data from up to 95 countries for 25 years, we show that the effect of decentralization on economic growth, quality of government, and public goods provision strongly depends on two aspects of political centralization: 1) strength of national party system (measured by the age of the main parties and fractionalization of the government parties) and 2) subordination (whether local and state executives are appointed or elected). We find solid support for Riker’s theory (1964) in developing countries: Strong parties significantly improve the results of fiscal decentralization in terms of economic growth, quality of government, and public goods provision. There is also some evidence that subordination of local to higher-level governments improves the effect of decentralization on growth and public goods provision (in developed and developing countries) and government quality (in developing countries)