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Regional competition, business politicians, and subnational fiscal policy

Published online by Cambridge University Press:  24 May 2018

Leonardo Baccini ,
Quan Li ,
Irina Mirkina  and
Kristina Johnson
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Abstract

What explains subnational policy choices over tax cut after decentralization? We test two different explanations in the context of the 2002 tax reform in Russia. A popular strand of literature suggests that decentralization induces more regional competition over investment, motivating subnational tax cuts. A second body of literature suggests that personal business interests of regional governors can account for their different policy choices. Governors with personal business ties refrain from tax cuts because they increase market competition. We find no support for the regional competition hypothesis, but strong statistical evidence for the business connection hypothesis. Our findings have important implications for research on fiscal decentralization and on the connections between business interests of leaders and their policy choices.

Keywords

fiscal policydecentralizationbusiness and politicsRussia
Type
Research Article
Information
Business and Politics , Volume 20 , Issue 3 , September 2018 , pp. 410 - 437
Copyright
Copyright © V.K. Aggarwal 2018 and published under exclusive license to Cambridge University Press 

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Footnotes

We thank Interfax for letting us use private data from the SPARK Database, available at http://www.spark-interfax.ru/promo/. We thank the participants of the 2013 International Political Economy Society annual conference for helpful comments on a previous draft of the paper. Alisa Voznaya provided research assistance. All remaining errors are ours.

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