Contra Coercion: Russian Tax Reform, Exogenous Shocks, and Negotiated Institutional Change

The view of institutions as coercion rather than as contracts dominates the comparative politics literature on both institutional creation and the politics of economic reform. The emergence of a collectively optimal tax code in Russia demonstrates the limitations of this emphasis on coercion. This new tax code was not imposed by a strong central leader, mandated by international institutions, or the result of state capture by powerful economic interest groups. Rather, it is the product of a mutually beneficial exchange between the Russian government and the Russian oil companies. Russia's ability to negotiate an effective tax regime also suggests the conditions under which and the microcausal mechanism whereby exogenous shocks promote institutional change and economic reform. Owing to their mutual vulnerability and interdependence, the August 1998 financial crisis generated widely shared perceptions among these actors that the payoffs of cooperation had changed. Yet the economic reform institution that resulted required a series of incremental strategic moves that established common knowledge.