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.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
4024.
Find related papers by JEL classification: D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior P26 - Economic Systems - - Socialist Systems and Transition Economies - - - Political Economy P27 - Economic Systems - - Socialist Systems and Transition Economies - - - Performance and Prospects
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Haaparanta, Pertti & Juurikkala, Tuuli & Lazareva, Olga & Pirttilä, Jukka & Solanko, Laura & Zhuravskaya, Ekaterina, 2003.
"Firms and public service provision in Russia,"
BOFIT Discussion Papers
16/2003, Bank of Finland, Institute for Economies in Transition.
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Pertti Haaparanta & Tuuli Juurikkala & Olga Lazareva & Jukka Pirttila & Laura Solanko & Ekaterina Zhuravskaya, 2003.
"Firms And Public Service Provision In Russia,"
Working Papers
w0041, Center for Economic and Financial Research (CEFIR).
[Downloadable!]
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