Decentralization in Transition Economies: A Tragedy of the Commons?

Posted: 5 Sep 1997

See all articles by Daniel Berkowitz

Daniel Berkowitz

University of Pittsburgh - Department of Economics

Wei Li

University of Virginia - Darden School of Business; Centre for Economic Policy Research (CEPR)

Date Written: May 1997

Abstract

China began its gradual economic reform in the late 1970s; Russia initiated radical reform in the early 1990s. During the course of reform, China has enjoyed rapid growth while Russia has contracted. This paper argues that one reason for this difference is that Chinese local governments enjoy more clearly defined rights of taxation than their counterparts in Russia. When rights of taxation are sharply defined, a local government has the exclusive right to tax enterprises located within its territory. These rights become fuzzier as the number of independent tax agencies increases. A model is constructed in which these differences in property rights generate a forecast consistent with the observation that the effective tax rate facing an enterprise tends to be higher in Russia while local tax collections and the local provision of public goods and infrastructure tend to be stronger in China.

JEL Classification: H71, P52

Suggested Citation

Berkowitz, Daniel and Li, Wei, Decentralization in Transition Economies: A Tragedy of the Commons? (May 1997). William Davidson Institute Working Paper No. 45. Available at SSRN: https://ssrn.com/abstract=11083

Daniel Berkowitz (Contact Author)

University of Pittsburgh - Department of Economics ( email )

4711 WWPH
Pittsburgh, PA 15260
United States
412-648-7072 (Phone)
412-648-3011 (Fax)

HOME PAGE: http://www.pitt.edu/~dmberk

Wei Li

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
804-243-7691 (Phone)
804-243-7681 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/li.htm

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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