Working Paper: CEPR ID: DP4024
Authors: Irina Slinko; Evgeny Yakovlev; Ekaterina Zhuravskaya
Abstract: What are the effects of institutional subversion on small business development, fiscal policies, economic growth, and firm performance? This Paper provides an empirical investigation of institutional subversion in Russia’s regions. We develop a complete account of preferential treatments to the largest regional firms in texts of regional legislation during 1992-2000. The concentration of preferential treatments is used as a proxy for legislative subversion. Based on cross-section and panel data analysis, we find that regional institutional subversion has an adverse effect on small business growth, tax collection, social public spending, and federal tax arrears. Robustness of these results is verified by looking at a proxy for potential subversion based on size concentration in regional economies. The alternative approach produces similar results. Regional political influence generates substantial gains to firms both in the long and the short run. These firms exhibit faster growth in sales, market share, profitability, employment, and capital compared to their counterparts who are not politically connected. Yet, firms that exercise political influence have lower labour productivity.
Keywords: capture; institutional subversion; reforms; russia
JEL Codes: D71; D72; P26; P27
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| institutional subversion (P37) | small business growth (M13) |
| institutional subversion (P37) | tax collection (H26) |
| institutional subversion (P37) | social public spending (H59) |
| institutional subversion (P37) | federal tax arrears (H26) |
| preferential treatment concentration (D30) | small business employment (M13) |
| preferential treatment concentration (D30) | turnover (J63) |
| preferential treatment concentration (D30) | share of small business employment (N81) |
| political influence (D72) | sales growth (O49) |
| political influence (D72) | market share growth (F62) |
| political influence (D72) | profitability growth (O44) |
| political influence (D72) | labor productivity (J24) |