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Roving Bandits in Action: Outside Option and Governmental Predation in Autocracies

Authors

  • Alexander Libman,

    1. Frankfurt School of Finance & Management and Russian Academy of Sciences, Germany
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  • Vladimir Kozlov,

    1. National Research University Higher School of Economics, Moscow, Russia
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  • André Schultz

    1. Frankfurt School of Finance & Management, Germany
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    • The authors appreciate the very helpful comments of the Editors and anonymous referees, participants of the Public Choice Society conference (Miami, March 2012), Higher School of Economics conference on development of economies and societies (Moscow, April 2012), International Political Economy Congress of the CIS and Russia (Moscow, April 2012), the seminar on Russian law at the University of Helsinki (October 2011) and the seminar of the Institute of Analysis of Enterprises and Markets of the Higher School of Economics (Moscow, April 2012), in particular Andrei Yakovlev, Rick van der Ploeg, Thomas Apolte, Kirill Titaev and Israel Marques. The project was supported by the MOE Project of Key Research Institute of Humanities and Social Sciences in Universities of China, project No. 11JJDGJW001 and by the BMBF Competence Network ‘Institutions and Institutional Change in Post-Socialism’ (KomPost). All mistakes remain our own.

Summary

The paper investigates the influence of outside options on the predatory behavior of autocrats. An outside option is referred to as the opportunity of an incumbent ruler to continue his career outside his current territory of control. The paper uses data on the effectiveness of tax collection and the repressiveness of tax jurisprudence for Russian regions in 2007–2009 and finds that regions ruled by governors with substantial outside options are characterized by more repressive behavior of tax authorities. However, surprisingly, the same tax authorities collect less additional revenues for the public budget. It conjectures that the presence of an outside option induces autocrats to behave like ‘roving bandits’: they use tax audits to establish control over regional companies, but exploit this control to extract private rents rather than revenues for the regional budget used for public goods provision.

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