THE POLITICAL ECONOMY OF TAXATION IN CIS COUNTRIES

This note explores selected political economy aspects of taxation in Ukraine, compares that experience with Russia’s and draws some insights for the CIS region. Ukraine has been unable so far to carry out a comprehensive tax reform, while Russia has. The lessons drawn from comparing the political economy determinants of these two experiences provide valuable insights on the sustainability of reforms and similar experiences in other CIS countries. This note does not attempt to provide a comprehensive treatment of all these issues, but rather to advance some ideas that can help develop a more systematic look at the political economy of taxation in the region. The note begins with a brief overview of the introduction of modern taxation methods during the Nineties. The note shows why comprehensive reform became a necessity. It follows with a simple framework to consider the political economy issues of taxation in the region. Afterwards, the Ukrainian situation is examined in some detail with a focus on how the legislature has addressed taxation issues and the twin problems of tax arrears and tax exemptions. The note continues with a comparison with Russia’s successful experience at comprehensive tax reform. The paper concludes by considering the applicability of the insights obtained to other CIS countries as well as to understanding the sustainability of fiscal institutions in the long-term