Regional Competition, Business Politicians, and Subnational Fiscal Policy

Business and Politics, 2018

51 Pages Posted: 11 Jun 2018

See all articles by Leonardo Baccini

Leonardo Baccini

McGill University

Quan Li

Texas A&M University - Department of Political Science

Irina Mirkina

Lund University - Department of Economics

Kristina Johnson

University of Massachusetts Boston - Edward J. Collins, Jr. Center for Public Management

Date Written: May 25, 2018

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 Policy, Decentralization, Business and Politics, Russia

Suggested Citation

Baccini, Leonardo and Li, Quan and Mirkina, Irina and Johnson, Kristina, Regional Competition, Business Politicians, and Subnational Fiscal Policy (May 25, 2018). Business and Politics, 2018. Available at SSRN: https://ssrn.com/abstract=3184833

Leonardo Baccini

McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada

Quan Li

Texas A&M University - Department of Political Science ( email )

College Station, TX 77843-4353
United States

Irina Mirkina (Contact Author)

Lund University - Department of Economics ( email )

P.O. Box 7082
S-220 07 Lund
Sweden

Kristina Johnson

University of Massachusetts Boston - Edward J. Collins, Jr. Center for Public Management ( email )

Healey Library, 10th Floor, Room 25
100 Morrissey Blvd.
Boston, MA 02125
United States

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