nep-cis New Economics Papers
on Confederation of Independent States
Issue of 2008‒01‒12
three papers chosen by
Anna Y. Borodina
Perm State University

  1. Myth and Reality of Flat Tax Reform: Micro Estimates of Tax Evasion Response and Welfare Effects in Russia By Yuriy Gorodnichenko; Jorge Martinez-Vazquez; Klara Sabirianova Peter
  2. The limits of self-governance when cooperators get punished: Experimental evidence from urban and rural Russia By Simon Gaechter; Benedikt Herrmann
  3. The failed promise of foreign direct investment: some remarks on ‘malign’ investment and political instability in former Soviet states By Beck, Matthias; Acc-Nikmehr, Nataliya

  1. By: Yuriy Gorodnichenko; Jorge Martinez-Vazquez; Klara Sabirianova Peter
    Abstract: Using micro-level data, we examine the effects of Russia's 2001 flat rate income tax reform on consumption, income, and tax evasion. We use the gap between household expenditures and reported earnings as a proxy for tax evasion with data from a household panel for 1998-2004. Utilizing difference-in-difference and regression-discontinuity-type approaches, we find that large and significant changes in tax evasion following the flat tax reform are associated with changes in voluntary compliance and cannot be explained by changes in tax enforcement policies. We also find the productivity response of taxpayers to the flat tax reform is small relative to the tax evasion response. Finally, we develop a feasible framework to assess the deadweight loss from personal income tax in the presence of tax evasion based on the consumption response to tax changes. We show that because of the strong tax evasion response the efficiency gain from the Russian flat tax reform is at least 30% smaller than the gain implied by conventional approaches.
    JEL: D73 H21 H24 H26 J3 O1 P2
    Date: 2008–01
  2. By: Simon Gaechter (University of Nottingham); Benedikt Herrmann (University of Nottingham)
    Abstract: We report evidence from public goods experiments with and without punishment which we conducted in Russia with 566 urban and rural participants of young and mature age cohorts. Russia is interesting for studying voluntary cooperation because of its long history of collectivism, and a huge urban-rural gap. In contrast to previous experiments we find no cooperation-enhancing effect of punishment. An important reason is that there is substantial punishment of high contributors in all four subject pools. Thus, punishment can also undermine the scope for self-governance in the sense of high levels of voluntary cooperation that are sustained by sanctioning free riders only.
    Keywords: social norms, free riding, misdirected punishment, experiments
    JEL: H41 C91 D23 C72
    Date: 2007–11
  3. By: Beck, Matthias; Acc-Nikmehr, Nataliya
    Abstract: The policy of key international organisation continues to be informed by the assumption that Foreign Direct Investment (FDI) has an unambiguously positive effect on recipient nations. However, there is increasing evidence that, on a global scale, increased trade and investment flows from rich to poorer nations have not contributed to a convergence of levels of income and well-being. This is particularly apparent in the context of former Soviet states, many of which continue to experience a decline, in both relative and absolute terms, in per capita GDP alongside a diminution in the life expectancy of their populations. Examining data on FDI received by former Soviet States from 1997 to 2005, this paper notes, firstly, that these investments have been concentrated on a few, typical natural-resource-rich states. Secondly, it observes that even these resource-rich countries experienced massive fluctuations in terms of the amounts of FDI they received over this time period. Lastly, the paper examines the impact of FDI on a number of country risk indicators via a pooled regression model which includes data for twelve former Soviet countries, namely the Central and Eastern European States of Belarus, Moldova, Russia, and Ukraine, and the Central Asian Republics of Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan. This analysis indicates that FDI has either a marginally negative effect on individual country risk measures such as in the case of ‘Overall Country Risk’, or significantly negative effects as in the case of ‘Economic Risk’ and ‘Legal Risk’. The paper concludes that there is strong case for questioning the existing orthodoxy which argues that problems of transition can be overcome via increased FDI and which continues to advise former Soviet states to pursue foreign capital at all cost.
    Date: 2007

This nep-cis issue is ©2008 by Anna Y. Borodina. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.