Transnationalization and the Georgian State: Myth or Reality?

This chapter investigates the diffusion of neoliberal tax policy principles post-Soviet Georgia. I discuss the conventional explanations from the literature on policy diffusion and the politics of taxation and tax policy reform. These include domestic and external factors, such as external influence through conditionality, party ideology, veto players and trade unionism. I apply a process-tracing method to explore how Georgian tax policy was (re)made over a period of 15 years. Two arguments are developed: one that the making of the new Georgian state and tax policy formation are interlinked processes; second, the transnationalization of a policy arena, that is infiltration by nonstate actors who internalize external policy norms and preferences, can lead to a tax policy shift towards neoliberalism. However, the creation of a capable Georgian state was a by-product of changes in tax policy and administration after the political changes of 2003. I conclude that transnationalization can explain the process of policy reforms in reducing marginal tax rates, adopting a flat tax rate and simplifying tax policy to attract capital and promote economic growth.