Ideas versus Resources: Explaining the Flat Tax and Pension Privatization Revolutions in Eastern Europe and the Former Soviet Union

Abstract

This manuscript examines the rapid spread of pension privatization and the flat tax in former communist countries in order to understand why new policy ideas take hold and to better understand the role played by material resources in the diffusion of new policy ideas. Unlike previous liberalizing reforms, these programs spread without direct or indirect EU pressure. Rather, these programs spread due to the efforts of policy entrepreneurs in the World Bank in the case of pension privatization, and due to the work of policy advocates in right-wing think tanks in the case of flat taxes. Policy entrepreneurs in both instances succeeded in arguing that these programs would serve to make former communist economies more competitive in a highly integrated global economy. A comparative analysis of the diffusion of pension privatization and the flat tax allows us to examine how resources shape the nature and the path of diffusion of new policy ideas. This paper concludes that resources may accelerate the diffusion of policy ideas and encourage their adoption in larger states, but ideas can nonetheless diffuse quickly in competitive environments through networks of policy entrepreneurs even in the absence of significant financial resources or membership conditionalities.

Keywords: diffusion, pension, tax, flat tax, privatization, eastern europe, Soviet Union, policy network, ideas

JEL Classification: b2