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Revenue Traps

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  • SCOTT GEHLBACH

Abstract

When state officials care about tax revenue and factors of production are mobile across economic sectors, political economies organize themselves into equilibria where officials promote sectors to which resources are allocated, which in turn encourages that resource allocation. Differences across sectors in the ability of officials to extract revenues may result in a “revenue trap”: the persistence of a low‐productivity equilibrium even in the presence of large shocks to resource allocation. I argue that the failure of privatization in part of the postcommunist world to effect a shift toward new private economic activity resulted in part from such a trap.

Suggested Citation

  • Scott Gehlbach, 2007. "Revenue Traps," Economics and Politics, Wiley Blackwell, vol. 19(1), pages 73-96, March.
    • Handle: RePEc:bla:ecopol:v:19:y:2007:i:1:p:73-96
    DOI: 10.1111/j.1468-0343.2007.00303.x
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    1. Roger H. Gorden & David D. Li, 1997. "Taxes and Government Incentives: Eastern Europe vs. China," William Davidson Institute Working Papers Series 56, William Davidson Institute at the University of Michigan.
    2. Hellman, Joel S. & Jones, Geraint & Kaufmann, daniel, 2000. ""Seize the state, seize the day": state capture, corruption, and influence in transition," Policy Research Working Paper Series 2444, The World Bank.
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    Cited by:

    1. Ethan Bueno De Mesquita & Catherine Hafer, 2008. "Public Protection Or Private Extortion?," Economics and Politics, Wiley Blackwell, vol. 20(1), pages 1-32, March.
    2. Ismoil Khujamkulov, "undated". "Tax revenues in transition countries: Structural changes and their policy implications," WIDER Working Paper Series 180, World Institute for Development Economic Research (UNU-WIDER).

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