Representation through Taxation: Revenue, Politics, and Development in Postcommunist States

Description

Social scientists teach that politicians favor groups that are organized over those that are not. Representation through Taxation challenges this conventional wisdom. Emphasizing that there are limits to what organized interests can credibly promise in return for favorable treatment, Gehlbach shows that politicians may instead give preference to groups - organized or not. Gehlbach develops this argument in the context of the postcommunist experience, focusing on the incentive of politicians to promote sectors that are naturally more tax compliant, regardless of their organization. In the former Soviet Union, tax systems were structured around familiar revenue sources, magnifying this incentive and helping to prejudice policy against new private enterprise. In Eastern Europe, in contrast, tax systems were created to cast the revenue net more widely, encouraging politicians to provide the collective goods necessary for new firms to flourish.

Scott Gehlbach is Associate Professor of Political Science at the University of Wisconsin, Madison. He is also a research associate of the Centre for Economic and Financial Research in Moscow, where he spent the 2007-8 academic year as a Fulbright-Hays Faculty Research Abroad Fellow, and is a recent recipient of a Social Science Research Council Eurasia Program Postdoctoral Research Fellowship. His work has appeared in numerous journals, including the American Journal of Political Science, the Quarterly Journal of Political Science, Economics and Politics, and Rationality and Society. His dissertation on the political economy of taxation in postcommunist states won the Mancur Olson Award for the best dissertation in the field of political economy. Professor Gehlbach received his PhD in political science and economics from the University of California, Berkeley.

'Why do different postcommunist governments pursue differing investment strategies? Gehlbach shows that game theory and econometrics, when combined with expert area knowledge, produces an interesting answer, namely, that given some sets of conditions, governments invest inefficiently so as to maximize their tax revenue.' Nathaniel Beck, New York University 'Scott Gehlbach has written a terrific book that should be required reading for scholars of taxation, state capacity, and interest group politics. Whereas the exchange of political favors for tax payments is often treated as unproblematic, both politicians and firms have an incentive to renege on this 'contract' ex post. Gehlbach finds that to mitigate this incentive problem politicians reward firms in sectors that are easier to tax because they can be more confident that the firms are abiding by the contract. He makes the case with an impressive array of formal theory, statistical methods, and deep knowledge of the postcommunist world. By recognizing 'taxability' as a determinant of policy bias, Gehlbach makes an important and original contribution that opens new avenues for research.' Timothy Frye, Professor, Department of Political Science and the Harriman Institute, Columbia University 'This dazzling, well-written book employs formal models and empirical analysis to make us rethink the political economy of taxation and its relationship to economic development. Gehlbach shows that post-Soviet governments desperate for tax revenues and large, inefficient enterprises seeking to survive found common purpose in a tax system favoring big firms because their tax compliance was more likely than that of relatively efficient smaller firms. But in the long-run this tax system has stifled economic growth and created a 'revenue trap' that weakens the state's ability to support development.' Cynthia Kaplan, University of California, Santa Barbara 'Representation Through Taxation is an innovative work of what Schumpeter called fiscal sociology. It traces the battles between business and the state over taxation in postcommunist Eastern Europe and the former Soviet Union, and challenges much conventional wisdom on the subject. Rather than just supporting the growth of business and then trying to tax it, Gehlbach argues that postcommunist states selectively supported the kind of businesses that are easy to tax. This, he contends, shaped the patterns of taxation and economic development across the region. Scrupulously researched, the book is a provocative and insightful contribution to our understanding of the political economy of reform.' Daniel Treisman, University of California, Los Angeles 'Scott Gehlbach's well-written book is an important contribution both to positive political economy and to the study of post-communist transition. ... an innovative application of formal political theory which is likely to stimulate a wealth of future research.' Europe-Asia Studies