Empirical Public Economics
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Edited by Attiat F. Ott and Richard J. Cebula
Chapter 21: What Kept the Russian Federation Intact? Testing the Internal Exit Model of Buchanan and Faith
Vjacheslav Dombrovsky* 1 Introduction Recent experiences with political integration and disintegration of nations have raised a number of important questions about the determinants of these processes. When do secessions take place? Are secessions economically efﬁcient? Can secessions be staved off with the help of redistributive policies? Several explanations have been put forward in the literature. Alesina and Spolaore (1997) argue that secessions are caused by liberalization of international trade and increased democratization. Using a similar analytical framework, Bolton and Roland (1997) point to differences in income distribution within regions of a federation. The analysis of Buchanan and Faith (1987) implies that the driving forces of separatism are differences in incomes across regions. There is also little agreement as to whether secessions can be prevented by using compensation schemes.1 This chapter sheds more light on the debate by providing empirical evidence consistent with the hypotheses derived from the work of Buchanan and Faith, using panel data on intergovernmental transfers in the Russian Federation. To test hypotheses about determinants of secessions and effectiveness of compensation schemes, it is useful to study environments with a high degree of heterogeneity in incomes and preferences, where separatist pressures were once strong but did not lead to actual secession. Thus, the experience of the Russian Federation in the 1990s presents an ideal quasi-experiment for testing the theories of secession. First, the Russian Federation is, probably, one of the most heterogeneous countries in the world. It spans 11 time zones, and its 89 regions are home...
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